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Why Universal Display Corporation's Stock Crashed Today

By Anders Bylund – Nov 2, 2018 at 4:56PM

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The third quarter came in below expectations and management set the bar low for the next report, as well. The price drop makes sense but it was probably way too sharp.

What happened

Shares of Universal Display (OLED -1.25%) plunged as much as 29.5% on Friday, following the release of disappointing third-quarter results. The stock recovered a bit to close at a smaller 20.5% drop.

So what

The researcher of organic light-emitting diode (OLED) technologies saw third-quarter sales rise 26% year over year, to $77.6 million. Adjusted earnings increased 71%, to $0.72 per share. The analyst consensus was looking for earnings near $0.66 per share on revenues in the neighborhood of $91.4 million.

Management also set their fourth-quarter revenue guidance at roughly $245 million, far below the Street's $299 million consensus for the same period. The implied year-end guidance from three months ago had been pointing to approximately $295 million.

Yellow charting arrow crashing sharply downward.

Image source: Getty Images.

Now what

In the earnings call, Universal Display CEO Steve Abramson said that flagship smartphones are launching with OLED screens all over the place, including two OLED-based iPhones this year. The order inflow from smartphone makers wasn't enough to support the company's original fourth-quarter estimates, though.

Abramson expects the smartphone situation to improve in 2019 and beyond, but the short-term pessimism remains. As for big-screen OLED televisions, those TV sets are selling as fast as Universal Display's TV-building clients can build them -- the shortage here is on the supply side. Business will grow in this sector about as fast as LG Display and Samsung can expand their OLED-making factories.

The stock took a drastic haircut due to a basket of short-term concerns, which doesn't come as a surprise. At the same time, the long-term growth prospects for this company still are fantastic. Smart investors might want to pick up a few shares at these deep-discount sale prices.

Anders Bylund owns shares of Universal Display. The Motley Fool owns shares of and recommends Universal Display. The Motley Fool has a disclosure policy.

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