Why Universal Display Corporation Shares Plunged

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Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of Universal Display Corporation plunged nearly 19% during intraday trading, then recovered some of those losses to close down around 7.7% after the OLED technologist announced that the European Patent Office has issued a negative decision regarding its key Organometallic Iridium Patent.

So what: The patent in question was challenged by other suppliers including Sumitomo Chemical, Merck Patent GmbH, and BASF SE, and its broadest claims had previously been allowed in a lower EPO decision. This time, however, the EPO panel decided to revoke the patent entirely -- a decision Universal Display says it's currently considering whether to appeal.

Now what: Keep in mind Universal Display has a massive portfolio of more than 3,000 issued and pending OLED-related patents, including 60 that -- like the one invalidated today -- specifically revolve around the emissive layer being comprised of phosphorescent materials. That's why CEO Steve Abramson once again asserted in today's press release that "any one decision in any one jurisdiction is not expected to have a material effect on our commercial business or agreements." 

What's more, UDC says, it "has a pending divisional EP patent application in which it intends to pursue substantial patent coverage that is similar to that provided in related patents that have previously been issued in the other jurisdictions." In short, even if the broadest claims of this patent are ultimately denied, Universal Display could still be granted patents in Europe with a smaller scope to accomplish similar end-goals.

Even so, that didn't stop already-bearish analysts at both Canaccord Genuity and Piper Jaffray from quickly reiterating their respective sell and underperform ratings on the the stock. But while Canaccord referred to the decision as "potentially transformational and likely to affect the Samsung agreement," Piper Jaffray disagreed, saying instead it could potentially weaken UDC's "negotiating power with upcoming customers" like LG Display and AU Optronics.

With this in mind, and as a longtime Universal Display shareholder myself, I'm not particularly concerned about this single patent decision. To the contrary, I agree with management's insistence these sorts of challenges are all par for the course with intellectual property companies like UDC. As it stands, given management's repeated assurances leading up this very event, I think investors can still rest easy knowing Universal Display will be just fine.

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Even after today's drop, it's worth noting shares of Universal Display have risen nearly 40% year to date as the market stormed out to huge gains across 2013. That left investors on the sidelines burned, but opportunistic investors can still find huge winners. In fact, the Motley Fool's chief investment officer has just hand-picked one such opportunity in our new report: "The Motley Fool's Top Stock for 2014." To find out which stock it is and read our in-depth report, simply click here. It's free!

The article Why Universal Display Corporation Shares Plunged originally appeared on Fool.com.

Fool contributor Steve Symington owns shares of Universal Display. The Motley Fool recommends and owns shares of Universal Display. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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