If you can't beat 'em, join 'em. If you can beat them, however, make sure they know it, and then convert them to customers.

That's basically become the growth strategy for Universal Display Corporation (NASDAQ:OLED) -- and one that's difficult to argue with. The materials leader reported 68% year-over-year revenue growth in the first half of 2017. Earnings per share soared 137% in the same span. How is everything seemingly going right for the growth stock?

Simply put, Universal Display is stacking the deck against the competition by turning the gatekeepers of older-generation display technologies into its most important customers and partners.

A woman's hands texting on an illuminated smartphone screen.

Image source: Getty Images.

Big bet, big moves, big growth

Having a superior display technology certainly, helps to fuel the company's growth strategy. Organic light-emitting diodes, or OLEDs, offer higher-definition displays, reduced energy consumption, less wasted energy in the form of heat (they're cool to the touch), and more even light distribution compared to LED materials. They can be used for display screens in smartphones and televisions and even in lighting applications ranging from traditional light bulbs to ultra-thin and flexible light-emitting "sheets," for lack of a better word.

In other words, OLEDs appear to be the next logical step in the continuum of display and lighting technologies. In display applications, the technology arc has progressed from cathode ray tubes to plasma to liquid crystal displays (LCD) to LEDs (and is beginning to transition) to OLEDs. In lighting applications, this has recently progressed from incandescent bulbs to compact fluorescents to LEDs (and soon) to OLEDs.

But there's much more to Universal Display's success than having a superior technology. For starters, it made its initial bets on OLED technology all the way back in 1997 by funding a research grant with Princeton University -- well before even LCDs or compact fluorescents were widely available. That early start allowed the company to amass its current portfolio of 4,200 issued and pending patents worldwide. 

OLED Chart

OLED data by YCharts.

Because OLEDs ended up being a superior technology (it didn't have to turn out that way), and because Universal Display never wavered in its technical hunch, it's now nearly impossible for any display or lighting company to use OLEDs without first talking to the materials leader.

Major customers and growth drivers in displays include Samsung Display, LG Display, Apple, Panasonic, Sony, and the like. Importantly, these companies used to or currently do rely on competing for older display technologies such as LCD and LED. As they convert to OLED en masse, they'll continue to drive Universal Display stock higher.

There's a similar -- if not larger -- opportunity for OLED lighting, although it's earlier in the development process. Nonetheless, it could become a $1.9 billion market in 2021 and a $5.8 billion market by 2025. That means those 4,200 patents will prove pretty valuable for the foreseeable future.

What does it mean for investors?

Shareholders have been in a state of pure bliss with the recent performance of Universal Display stock. It's tough to argue with five-year returns of 323%, after all. While growth should continue for the foreseeable future, there are rumblings that OLED smartphone displays are suffering from burn-in. That occurs when certain objects that regularly appear on the screen (for example, the top menu bar displaying time, notifications, and network activity) seem to be permanently displayed on the screen. It could be a risk to the expansion of OLEDs if the problems are as bad and widespread as initially reported. 

On the same note, there will come a day when OLEDs are the "old" technology for both displays and lighting. In fact, one of Universal Display's largest customers is already banking on it.

Of course, that day is still far away. So assuming screen burn-in is much ado about nothing, this could be the era of OLEDs -- and this stock is the only game in town.

Maxx Chatsko has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Apple and Universal Display. The Motley Fool has the following options: long January 2020 $150 calls on Apple and short January 2020 $155 calls on Apple. The Motley Fool has a disclosure policy.