For many high-growth tech stocks, the bear market of 2022, as vicious as it's been, has simply unwound gains from the last two to three years. The bear has been particularly cruel to Universal Display (OLED -8.15%). After peaking in early 2021, the provider of OLED screen materials and licensor of screen manufacturing technology has coughed up more than just a couple of years of gains. The stock is down 39% in the trailing-five-year period.  

Any stock tied to highly cyclical manufacturing businesses is going to exhibit above-average sell-offs. Even the asset-light Universal Display is no exception. And yet, even as investors fret over a weakening market for smartphones that is likely to last into 2023, the company is still growing. Is the stock a buy after a solid third-quarter earnings update?

A perfect storm for the smartphone industry

Companies with an outsize reliance on the smartphone industry have been reporting weak guidance for the fourth quarter and into early 2023. According to leading smartphone chip designer Qualcomm, smartphone unit sales are headed for a percentage drop in the low teens this year compared to 2021.

Given that a wide range of mid- to high-end smartphone models use ultra-high-definition OLED screens today, it's no wonder that investors have been feeling glum about Universal Display. China's zero-COVID lockdown policy isn't helping the situation, nor is the Federal Reserve's aggressive interest rate hikes to try to tame inflation (higher rates lower the present value of stocks). 

And yet in spite of it all, Universal Display is hanging in. Revenue reached a new quarterly record of $161 million in the third quarter (a nearly 12% increase over a year ago), and net income was a very healthy $68 million (a lucrative net profit margin of 42%).  

Even better, in the face of economic worry, management reiterated its full-year 2022 guidance for revenue to be about $600 million. This is by no means a high growth rate, but this outlook does imply an 8% increase over 2021.

More than just phones, and more than just displacing LED

Granted, there is a high level of uncertainty about how financials will pan out in 2023. Expect some early guidance in a few more months when Universal Display reports on its fourth-quarter earnings. But this company is far from reliant on smartphones. In fact, devices with far larger displays (TVs, laptops, desktop computer monitors) are now beginning to reach an inflection point where OLED starts to make sense versus legacy LED screens. 

CEO Steven Abramson noted a research report in the last earnings call that predicts larger-screen OLED shipments (laptops and monitors) will increase 400% over the next five years. TV and computer adoption of OLED would be significant, since far larger screens mean exponentially more OLED basic material sold compared to that for a small smartphone -- not to mention higher licensing revenue from patents on manufacturing processes.  

And Universal Display is also hard at work to bring blue phosphorescent OLED material to market, which would join its red and green materials. A new and more efficient manufacturing method called OVJP (organic vapor jet printing) will also become a meaningful revenue generator in the coming years, and could help more manufacturers make the switch from LED to OLED if it helps drive down cost.

UDC stock looks like a bargain to me after the third-quarter update, though I expect plenty more turbulence while the market sorts out economic woes and a slowdown in tech manufacturing. Shares trade for 25 times trailing 12-month earnings, and currently pay a small but growing dividend yielding 1.1%. The dividend payment is small right now, but it's expanding rapidly. It's been increased every year since UDC started it back in 2018, and was increased by 50% earlier in 2022. 

OLED Dividends Paid (TTM) Chart

Data by YCharts; TTM = trailing 12 months..

With Universal Display highly profitable and holding $863 million in cash and investments on the books (and zero debt), there's plenty of room for this dividend to climb even higher. And once the market gets a hint that this slowdown is bottoming, shares could soar as they have in the past after cyclical downturns. As Universal Display shakes off smartphone industry woes, I remain a buyer here.