Shares of Universal Display (Nasdaq: PANL) have been on a heck of a roller coaster in the past year. The technology researcher for organic light-emitting diode, or OLED, displays and lighting panels rose to $60 last September, but it has lost more than half of its value since then, trading just below $30 now.

Despite the collapsing share price, many investors still bet real money against Universal Display. At the last reckoning by the end of May, a stunning 42% of all shares were sold short.

Selling stocks short is a risky play, with potentially more downside than upside, so it's not an investment to be made lightly. Are Universal Display's short-sellers onto something, or are they setting themselves up for a world of hurt when the stock starts rising again?

Word on the Street
The average analyst's price target sits at $46 today\, for a nearly 60% upside against current prices. But the aggregate recommendation is still just a "hold," indicating that analysts see a ton of risk balancing out the upside.

Analyst firm Wedbush Morgan is typical of the Wall Street attitude, presenting a "hold" rating and a modest $32 target price. "While UDC's growth should be impressive, we believe consensus forecasts are likely optimistic, and we would look for a better entry point," said analyst Craig Irwin in a recent note to customers. He does note that the introduction of OLED TV sets from LG Display (NYSE: LPL) and Samsung could give this stock a serious catalyst for renewed growth.

Fool by numbers
So how risky is this stock, really? Well, shares are currently trading for just 16.5 times forward earnings. Granted, that figure depends on the earnings estimates that Irwin called "optimistic" just a second ago, but there's wiggle room here. Earnings are unpredictable thanks to lumpy sales but did add up to $0.22 of positive earnings per share in the past four quarters.

Let's say Universal lays a real egg and delivers just half the earnings Wall Street expects over the next year. That would produce a trailing P/E of less than 34, assuming that share prices stayed in place. That's very affordable for a hypergrowth stock all the same.

Story stock
Betting against Universal Display flies in the face of a few powerful catalysts:

  • OLED screens have become standard issue for Samsung's smartphones. Sammy is a mighty ally with massive OLED manufacturing capacity and the best-selling lineup of phones in the world. Yes, Samsung even outsells Apple (Nasdaq: AAPL). The iPhone may beat the Galaxy S II head-to-head, but Samsung has a stable of other models backing the Galaxy up, while the iPhone fights alone. And most of the South Korean benchwarmers come with OLED screens, too.
  • The big-screen TVs are coming, as Wedbush noted. Given that Universal tends to get paid by the pound of OLED materials (on top of license fees for the right to make screens at all), one TV screen equals dozens of smartphone sales for this company's top and bottom lines.
  • Governments around the world, including our own, have essentially outlawed light bulbs. Billions of incandescent bulbs will need to be replaced with more efficient alternatives over the next few years. Traditional fluorescent tubes are already being challenged by LED lights from General Electric (NYSE: GE) and Cree (Nasdaq: CREE), but Universal Display and other OLED experts are working on lighting panels that put even the LED lights' efficiency to shame. It's a huge market, and Universal could soar sky-high on just a tiny sliver of it.

The Foolish takeaway
All these factors considered, I believe that the short-sellers are being short-sighted. Though Universal runs at a sprinter's pace, this race is really a marathon.

As a shareholder, I don't really mind the heavy shorting. If anything, the market action is setting this stock up for a spectacular short-squeeze when the catalysts play out. Universal Display is a stock for the ages, and I think the short-sellers are in for some serious pain.

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