Innovative display-technology manufacturer Universal Display (NASDAQ:OLED) has been on a wild ride recently. Share prices rose to $209 in mid-January, providing investors a 260% return in just 52 weeks. But the market turned south in a hurry, and the stock is now trading 25% below that lofty all-time high.
The worst mistake investors in this OLED specialist can make right now is to panic and sell based on Apple's misfortunes. This is actually a great buy-in window, not a blinking red "exit" sign.
The way up
OLED panels are becoming standard fare in high-end smartphones. Many makers of Android phones have included them in their flagship devices for years, due to their premium features such as modest power usage, extreme contrast ratios, and vivid colors. Finally getting Apple into that group was a major breakthrough, at least in the eyes of consumers and investors who weigh every smartphone against Cupertino's finest.
So when Universal Display shares tripled in 2017, Apple played a big part in those gains. Mere rumors of OLED-equipped iPhones started driving share prices higher in the spring, and the final announcement only cemented the soaring increase.
Ahead of Apple's first-quarter report, which is scheduled for this Thursday, rumor now has it that the iPhone X isn't selling quite as well as the company had hoped it would. Analysts still expect strong results, but the smartphone reportedly isn't pulling its weight.
That would be gloomy news for Universal Display. If the first OLED iPhone gets a tepid response, both the short- and long-term upsides to luring Apple onto its list of OLED customers would diminish dramatically.
So Universal Display shares plunge on every bit of bad news -- or negative rumor -- regarding the iPhone X. Fair enough, I suppose. When you ride Apple's coattails to the top of the mountain, you have to be prepared to take a hit if Cupertino doesn't deliver.
Buy, don't sell
Some Wall Street analysts fear that Apple might drop OLED from the next generation of smartphones altogether. Others believe that there will be two new OLED iPhones in 2018.
In the grand scheme of things, I don't really care who's right.
Smartphones and tablet screens took Universal Display this far, but big-screen OLED television sets make a much more attractive market these days. Prices for OLED TVs are coming down quickly, shifting them into the mainstream market along with 4K high-definition displays. One 55-inch OLED TV screen is worth as much to Universal Display as 100 5.5-inch smartphones, because the royalties and material sales are based on the total screen size.
And even that big-ticket market will soon be overshadowed by the even larger business opportunity of using OLED elements in everyday lighting products. Come back in five or 10 years, and you'll think of Universal Display more as a provider of beautiful and ultra-efficient lighting panels than as a TV or smartphone component maker.
This Apple-based seesaw action will be forgotten as Universal Display's shares keep plotting strong gains for the next several years. Locking in a 25% discount makes sense if you're buying the stock right now.
But whatever you do, don't panic. Stay away from the "sell" button.
Anders Bylund owns shares of Universal Display. 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.