Shares of Universal Display Corporation (OLED +3.85%) jumped 21.6% in November, according to data provided by S&P Global Market Intelligence, far outpacing the roughly 9% gain for the S&P 500. And the outperformance really boils down to its financial report for the third quarter of 2023.
Universal Display -- a company specializing in organic light-emitting diode (OLED) technology -- reported Q3 results on Nov. 2, showing declines on both the top and bottom lines. However, Universal Display's business has some cyclicality, and investors were prepared for a pullback. Therefore, the market was listening more for what's coming in 2024.
In the conference call to discuss Q3 results, Universal Display's management said, "We continue to believe that we are on track to introduce our all-phosphorescent RGB stack into the commercial market in 2024." And, as I'll explain, that's exactly what investors want to hear.
NASDAQ: OLED
Key Data Points
Even though Universal Display's business is slower in 2023, it's still quite profitable, and it's giving back to shareholders. On Nov. 2, it declared another dividend. The company's dividend has now more than doubled in just the last three years.
Why investors are looking ahead to 2024
Screens are increasingly turning to OLED tech because of its brightness, clarity, and lower energy consumption. And with over 6,000 patents, this makes Universal Display the primary beneficiary of the trend. However, the next iteration of OLED technology is expected to come to market in 2024.
Phosphorescent OLED (PHOLED) is expected to provide even more energy savings, which is a big deal for mobile devices in particular. Universal Display already has red and green PHOLED ready for market. And it's in the final stages of developing PHOLED blue. And once it has the whole RGB stack, screen makers will likely want to adopt it.
As a reminder of its ongoing adoption, Universal Display signed a deal with BOE Technology on Nov. 27. BOE is a multibillion-dollar tech company in China. Universal Display will both license its tech and provide the necessary materials, which is the two ways the company generates revenue.
If PHOLED is as good as Universal Display's management says, then investors can expect many more deals like that with BOE Technology.
Is Universal Display stock a buy?
As of Q3, Universal Display had a debt-free balance sheet, nearly $500 million in cash, cash equivalents, and short-term investments, and it was still profitable with quarterly-operating income of $48.4 million. This is an incredibly strong position for the company during a lean time.
Looking ahead for the rest of 2023 and into 2024, it does seem like the adoption of OLED is poised to continue. Universal Display stock isn't cheap at 41 times its trailing earnings. But if things play out like some think it could, now might actually be a good time to pick up shares.
