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Foolish Forecast: Universal Display

By Rich Smith – Updated Nov 16, 2016 at 1:15PM

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The picture is getting clearer.

Motley Fool Rule Breakers recommendation Universal Display (NASDAQ:PANL), which aims to commercialize a technology known as organic light-emitting diodes for use in television display and related technologies, powers up to report earnings on Monday.

Of course, at this stage in the start-up's life cycle, it's more accurate to say that Universal Display will report its latest batch of losses on Monday. The trio of professional analysts who follow the company are unanimous in predicting that Universal Display will report a $0.13-per-share loss next week, making for a tiny improvement over Q3 2004's $0.14 loss. In this Fool's view, that result (if it comes to pass) would be a good sign. After all, analysts also expect the company to report about a 62% increase in sales year over year. In my experience, "bad" start-ups tend to report losing more and more money the more they sell (for example, Sirius Satellite (NASDAQ:SIRI) grew its 2004 sales by 419% over their 2003 levels, but its losses continued to grow as well -- up 215%.)

Good start-ups, in contrast, gain scale as they build revenues and see their losses shrink as sales begin to generate sufficient income to cover costs. Illustrative of that, last quarter, Universal Display more than doubled its revenues against Q2 2004 and saw its losses decline by 29% as a result. Universal Display, therefore, looks like one of the "good ones," moving toward profitability as its products gain acceptance in the market.

Mind you, profits remain pretty far off in Universal Display's future. Analysts don't expect the company to earn anything this year (rather, to lose $0.53 per share, which would still be an improvement over last year's $0.59 loss), or next year, either (a $0.30 loss is predicted.) They are, however, predicting that Universal Display's revenues will double between 2005 and 2006, bringing the company closer and closer to giving its investors their ultimate reward.

What investors should focus on next week, then, are two things: First, is the company in fact narrowing its losses as sales build? Second, is it managing its cash well? At last report, the company still had $41.7 million in cash and equivalent to fund its march to profitability. At an annual free cash flow burn rate of just under $10 million, that cash stash should suffice to keep the lights on and the doors open until its revenues can support its costs.

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Fool contributor Rich Smith does not own shares of either company named above.

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Stocks Mentioned

Sirius XM Holdings Inc. Stock Quote
Sirius XM Holdings Inc.
SIRI
$5.81 (-1.02%) $0.06
Universal Display Corporation Stock Quote
Universal Display Corporation
OLED
$97.59 (-1.37%) $-1.36

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