So far this year technology stocks have been performing pretty well. The Nasdaq 100 Technology Sector Index is up about 12% since the beginning of the year, which outpaces the nearly 5% gain the S&P 500 has made.
But even though the share prices of many tech companies are up, that doesn't mean that all technology stocks are doing well, of course. Some of them are doing pretty poorly, in fact. Let's take a quick dive into the worst-performing tech stocks so far this year and see why things aren't going well for Windstream Holdings (NASDAQ:WIN), Universal Display (NASDAQ:OLED), and Ambarella (NASDAQ:AMBA).
Windstream Holdings: Down about 63%
Windstream Holdings, a telecommunications services company, serves rural parts of the country and has been in poor financial shape for a while. Much of the news about it this year hasn't done anything to turn things around, either.
The company reported its first-quarter results in May and missed some of Wall Street's estimates. Most notably, its earnings-per-share loss of $3.25 was larger than the loss of $2.95 per share analysts were expecting.
Windstream restructured some of its debt recently to put itself in a better financial position and even completed a 1-for-5 reverse stock split to reduce the number of shares and increase the share price. But as fellow Motley Fool contributor Billy Duberstein recently pointed out, the reverse stock split doesn't change the overall value of the company and hasn't done anything to alleviate Windstream's massive debt problem.
The company has about $10 billion debt and spun out its most promising business into its own entity, Uniti Group, back in 2015. This has left it with few opportunities for a turnaround. To make matters worse, Windstream received a downgrade from Citi analyst Michael Rollins this month from hold to sell. All of this has the company's share price reeling so far this year.
Universal Display: Down about 45%
Universal Display licenses patents for organic light-emitting diode (OLED) technology for smartphones and televisions and sells some raw material to display manufacturers. The company's exposure to the lucrative smartphone market and its ability to benefit from almost any OLED phone and display that's sold helped the company's shares climb nearly 300% between 2015 to 2017. Some poor performance in the first two quarters this year, however, has sent the stock tumbling.
The recent share price drop has a lot to do with the fact that investors have been disappointed that there hasn't been more clarification on Apple bringing OLED screens to more of its devices. Apple put OLED technology into its iPhone X, which helped spur some of Universal Display's previous share-price gains. But the uncertainty about more iPhones receiving OLED screens and news of a slowdown in iPhone X sales pushed the share price down.
Investors were also disappointed with an earnings miss for its fourth-quarter 2017 results reported back in February. The company had a one-time tax expense of $11.5 million in the quarter because of the implementation of the Tax Cuts and Jobs Act. If you exclude that expense, then earnings per share were $0.93 and would have outpaced analysts' consensus earnings estimate.
The good news for Universal Display and its investors is that the company is still in great shape to benefit from smartphone market's ongoing transition to OLED screens. Its patents are device-agnostic, and nearly any phone that uses an OLED screen -- whether it is a new iPhone or not -- likely puts some money in Universal Display's pocket.
Ambarella: Down about 40%
Ambarella makes image-processing chips that are used in everything from action cameras to wearable devices, security cameras, and more. The company's stock has been closely tied to action-camera maker GoPro.
Sales to GoPro accounted for about 20% of Ambarella's top line at the beginning of the year, though it's less now, and news of slowing camera sales for GoPro earlier in the year sent Ambarella's stock tumbling. Things didn't get any better when Ambarella's management issued its second-quarter revenue guidance of $62 million at the midpoint, which is far below analysts' expectations of $68.2 million.
Ambarella is still trying to find its footing as it moves away from its GoPro dependence and looks to grow chip sales in other markets. The company has already begun that transition, but it's been a slow process and increasing competition from Chinese companies isn't helping, either.
Tech investors know that betting on chip suppliers can be risky, as margins can get pinched due to rising competition and getting tied up with one big customer often ends poorly. Ambarella appears to be in a spot right now where it needs to find some bigger customers to grow its sales but has to be wary of snagging too big of a customer -- so it doesn't repeat the problems it had with GoPro.
Universal Display still has a lot of potential
Out of these three companies, it appears that Universal Display has the best chance of turning things around. The company's patents and ability to benefit from sales of OLED screens made by multiple manufacturers and across different consumer markets give it continued potential. Additionally, considering that Apple only uses OLED for one of its iPhones right now, there's still plenty of upside for Universal Display to benefit when and if Apple adds more OLED screens to its devices.
Chris Neiger has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Ambarella, Apple, GoPro, 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.