Shares of Universal Display (OLED 4.54%) have rocketed higher this year on optimism that demand for OLED (organic light-emitting diode) displays will rebound after last year's slump. Based on first-quarter 2019 results from the company, that optimism is being rewarded with proof that OLED is in fact back on the rise and well on its way to being the dominant display technology on the market.
Here are three key points Universal Display's management wants investors to know.
The quarterly numbers will keep getting better
Total revenue in the first quarter soared to $87.8 million compared with $43.6 million a year ago. Earnings per share increased even faster, to $0.66 per share, as opposed to just $0.13 in 2018.
Those results are a big reason for the most recent surge in stock price, which brings Universal Display's year-to-date return to 82% as of this writing, and nearly returning the stock to the all-time high it set back in January 2018. If management is right about business, there's room for the stock to run higher. Full-year 2019 revenue guidance was set at $345 million to $365 million, up from previous guidance of $325 million to $350 million. At the midpoint of the new outlook, that's a 44% increase from 2018 results.
An LG OLED big-screen TV. Image source: LG Electronics.
New form factors could be here to stay
By now, OLED is becoming a familiar technology, as it has found its way into many smartphone and smartwatch models over the past couple of years. OLED is quickly replacing LED displays in other areas, too, such as in the TV market. The tech is more than just improving upon existing displays, though. Because OLED displays can be made with flexible materials rather than rigid glass, many consumer electronics companies are experimenting with new designs.
Universal Display CEO Steve Abramson is always quick to give investors an update on what's in the works. On the most recent earnings call, Abramson talked about devices using the new flexible, foldable material and expressed optimism that demand would grow.
Abramson mentioned Sharp's foldable smartphone prototype that can be folded 300,000 times without being damaged. Sharp also unveiled new OLED panels for use in automobile dashboards, expected to start rolling out in 2021.
The Samsung Fold smartphone. Image source: Samsung.
Sale of materials is where it's at
All the new activity at OLED manufacturers is boosting Universal Display's results across the board, but materials those manufacturers need to purchase from Universal Display to build new panels will be the key component of growth in the years ahead. OLED emitter and other material sales made a big jump and contributed to profitability in a big way in the first quarter.
|
Metric |
Q1 2019 |
Q4 2018 |
Q1 2018 |
YOY Change |
|---|---|---|---|---|
|
Material sales |
$54.5 million |
$39.9 million |
$25.3 million |
115% |
|
Cost of sales |
$13 million |
$14.8 million |
$5.69 million |
128% |
|
Gross profit margin |
76.2% |
63% |
77.5% |
(1.3 p.p.) |
YOY = year over year. P.p. = percentage point. Data source: Universal Display.
It's worth noting that sale of raw materials to manufacturers is highly variable, but the takeaway is this: The more OLED panels make it onto the market, the more material sales there will be. Profit margins on that source of revenue are high and make a big impact on the bottom line for investors.
With electronics companies increasing their capacity to crank out more OLED in the next handful of years, material sales are an important area for investors to focus on. The outlook is rosy, and with the new display technology gaining in momentum, Universal Display's stock still looks like a good bet.
