Universal Display (NASDAQ:OLED) is a volatile stock. The display technology researcher, whose organic light-emitting diode (OLED) solutions can be found in plenty of smartphones and high-end TV sets today, is trading 85% above its 52-week lows but 27% below the all-time highs that were set in early 2018.
After a solid fourth-quarter report this week, the stock set fresh 52-week highs again. Is Universal Display a buy at these prices or should you wait for the soaring stock to come back down again?
The big picture
First, let me make it perfectly clear that I consider Universal Display a fantastic investment in the long run. Share prices may rise or fall temporarily but the underlying business story remains.
This company is providing digital screens with premium picture quality and low requirements for electric power, not to mention transparent displays and the bendable screens you see in the latest and greatest devices from Samsung and Huawei. To be more precise, Universal Display has developed the materials and technologies used at several levels of these devices, from red and green emitters to substrates and the manufacturing techniques used in their production.
The company makes money by licensing these patented technologies to screen builders and also, in some cases, resells the required chemicals through a long-standing partnership with chemicals giant PPG Industries. The license royalties are generally based on screen area, so a 52-inch TV screen generates about as much revenue for Universal Display as 100 5.2-inch smartphone displays.
OLED televisions are going mainstream and dropping in price, boosting Universal Display's top and bottom lines in ways the older smartphone and tablet screens could never do. The next step up will be lighting panels that take advantage of the OLED material's ability to generate light at low wattage and in shapes that just don't apply to traditional light bulbs and fluorescent tubes.
There are other next-generation display and lighting technologies on the horizon but Universal Display's OLED platform delivers a combination of high-quality output, low-power operation, and advanced manufacturing that is hard to beat. This is a technology I want to be invested in for the long haul, with plenty of untapped growth left to explore.
Click here for the latest earnings call transcript for Universal Display.
How to invest in these volatile shares
Universal Display is a volatile stock, often rising or falling much faster than the general market and trading at sky-high valuation ratios. Right now, for example, the stock trades for 120 times trailing earnings and 40 times next-year earnings estimates. We already discussed the stock's dynamic price changes. These attributes make it tough to nail down the perfect time to buy Universal Display shares. Instead, it's best to either "buy in thirds" over a period of several months or simply set up an automatic trade on a monthly or quarterly schedule. More advanced investors can even employ a dollar-cost averaging strategy here.
Spreading your investment out in this way lets you invest without trying to time the market, which is the wrong kind of fool's errand. Universal Display shares may suddenly dip or soar on a fresh earnings report, some new device development deal, or for no good reason at all. A disciplined investment approach helps you overcome the human risk-aversion that stops people from buying when prices are low -- there must be something wrong, right? The classic mantra of buying low and selling high is harder than it sounds, especially when dealing with volatile stocks such as Universal Display.
So, yes, I would recommend buying some Universal Display right now -- and add some more in early April, then again in May. Stretching your commitment beyond that span is always an option, of course.