It's fun to own shares of Universal Display (NASDAQ:OLED) again.
That's not always the case. The stock not only missed out on the general market rally of the last two years. It also missed perhaps the most exciting growth phase in the mobile industry, and ended up trading down while everything else was skyrocketing.
Investors and analysts have worried about Universal Display's lumpy and unpredictable revenues, about the lack of straight-up royalty payments in its supply deal with Samsung, and about the slow arrival of extremely expensive OLED TV sets.
And the company has never been wildly profitable, which drives its P/E ratios up into the nosebleed section.
Last week's second-quarter report put some of the biggest concerns to bed. Revenue jumped 65% year over year to $49.5 million, driving GAAP earnings to $0.33 per share -- a 43% leap. Fools love strong cash flows, and Universal delivered there, too: Operating cash flows jumped 136% year over year. Free cash added up to $13.6 million over the last six months, or 28% above the GAAP income line over the same span. That's great news.
Samsung's big, lumpy licensing agreement provided $20 million on the top line. That's up from $15 million in the year-ago quarter for a 33% increase -- far below the overall top-line growth. Organic growth is always fun.
More importantly, this should not be a flash in the pan.
"We believe the market has achieved a level of sustainable commercial technology adoption that can drive strong top line growth," said CFO Sidney Rosenblatt.
Rosenblatt reported strong demand for his OLED materials, driven by several separate factors. For one, OLED screens are expanding beyond their current smartphone and tablet territories, into areas like TV screens, flexible displays, and lighting panels.
For another, Universal's particular flavor of OLED materials are improving fast thanks to the company's growing research budgets. The red emitter has driven most of Universal's sales so far, but now the company has commercial quantities of a green emitter and some other parts of the display stack as well. Green materials added "significantly" to earnings this quarter, and that's a first.
So Universal Display has more end-user customers, and they're ordering more types of OLED components than before. That should add up to solid growth.
Investors sat up and took notice. Universal Display shares soared more than 18% overnight on this report, then fell back to just 7%. But the integrity of this fantastic report started sinking in later, aided by some positive analyst comments. Share prices have now surged nearly 30% over the last week, inching closer to 52-week highs.
Long-term investors have solid gold on their hands here. Universal Display is the most successful pick in my CAPS portfolio, having beaten the S&P 500 benchmark by 200% since 2006.
Let's see what happens when large-screen TV sets start making a difference, using both red and green materials from Universal Display. That's where the real fun begins.