What happened
Shares of Universal Display (OLED -2.06%) rose 14.2% in March, according to data from S&P Global Market Intelligence. The technology developer behind the organic light-emitting diode (OLED) screen you probably have on your phone nowadays didn't have much news of its own to report last month, but the stock was ready to rise on the slightest hint of good news from the mass-market smartphone and high-end TV-set markets.
So what
Entering March, the stock price had drifted 12.3% lower in 52 weeks. The shares weren't exactly bargain priced, trading at 10 times sales and 31 times adjusted earnings.
However, every valuation ratio was dipping deeper than the stock price since Universal Display's sales and profits have been trending up over the last year. The company's financial performance has been stellar in recent years, despite last year's downturn in the all-important target markets of smartphones and OLED-based TV sets.
OLED revenue (TTM) data by YCharts. TTM = trailing 12 months.
So the stock was looking for any excuse to release more of the market pressure after rising by 25.7% across January and February. As luck would have it, a couple of Universal Display's largest customers had some big news up their sleeves, related to OLED screens.
- First, the rumor mill churned out some OLED-based Apple (AAPL -1.22%) reports. The low-end iPhone SE 3 currently comes with a high-definition LCD screen, but Cupertino has reportedly ordered OLED screens from a Chinese supplier for the next iteration of this product line. At the other end of the product-pricing spectrum, Apple is said to have its first OLED iPad in the works with a planned price tag of $1,500 and up. For the record, the priciest iPad Pro base model today costs $1,099.
- On the TV side of the street, the only serious provider of living-room-scale OLED screens to date has been LG Display. So whether your high-end smart TV comes from LG, Sony, TCL, or Vizio, they all get their OLED screens from LG Display's panel-making factories. But that's about to change, as Samsung (SSNL.F -28.74%) threw its hat into the TV-sized OLED manufacturing ring in mid-March. The larger Korean tech titan will offer a mid-priced range of OLED sets and also start reselling those screens to other TV builders. That's a big step forward in a key market.
Now what
Don't forget that Universal Display's patent royalties and OLED material sales are based on the total area of screens being sold, so one 55-inch TV screen is worth as much to this company as 100 5.5-inch smartphone screens. As a result, the unit volumes might be lower in this market than in the smartphone sector, but the company should enjoy a game-changing surge in sales and profits as OLED screens work their way toward affordable consumer prices and mass-market appeal.
Universal Display has been one of my favorite high-growth tech stocks for years, and nothing has changed in that regard. The stock isn't cheap, but the company's long-term business prospects are downright thrilling.
