Why Universal Display Corporations Shareholders Should be Patient

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If there ever was a time for Universal Display Corporation to show Wall Street what it's made of, that time is now.

Credit: Universal Display.

Universal Display ended this week with back-to-back analyst meetings, including a chat with the folks at Needham Thursday, followed by a trip to JMP Securities Friday. And with the OLED technologist's annual shareholder meeting coming up the middle of next month, Universal Display CFO Sid Rosenblatt is gearing up to present at Cowen's Annual Technology Media & Telecom Conference next Wednesday. The week after that, he'll speak at the 2014 Society of Information Display conference.

Of course, as an investor I still wouldn't expect that the meetings and presentations will automatically result in a slew of analyst upgrades. But with the shares currently trading at just 15 times next year's expected earnings and within spitting distance of 52-week-lows, I'm having trouble reconciling Universal Display's torrid rates of top- and bottom-line growth with Mr. Market's general "meh" opinion of the stock.

This is a gift for the patient
Don't get me wrong. I'm all for letting Universal Display's stellar results speak for themselves. In fact, I'd much prefer management focus on running the business instead of propping up the stock price, especially considering the price of the latter always eventually reverts to the value of the former. To be sure, that's great for astute investors who build their positions in undervalued stocks -- a group to which I firmly believe Universal Display belongs -- before it happens.

After all, though shares of Universal Display skyrocketed 16% two weeks ago after crushing expectations with its first-quarter results -- which included year-over-year revenue growth of 152% to $37.8 million, helping Universal Display swing from a $0.10-per-share loss to net income of $0.09 per share over the same period -- the stock quickly gave up those gains and now trades almost exactly at its pre-earnings levels. As fellow Fool Anders Bylund pointed out a few days before the report, those levels also happen to be near multi-year lows.

Investor's shouldn't be worrying
As I noted following the subsequent conference call, management effectively muted pessimism regarding two previous worrisome developments from the weeks leading up to the report.

First, they insisted that green host material sales -- which comprised nearly a third of total revenue last quarter -- are expected to remain strong despite recent reports indicating Samsung's Cheil Industries might pose a threat. Then again, Universal Display management couldn't comment directly on the situation with Cheil Industries, but I shouldn't think Universal Display would feel confident making such a statement if they knew their green host material sales were in jeopardy.

LG's 55" OLED TV is enabled by Universal Display's technology, Credit: LG Display.

Second, regarding reports Samsung has abandoned plans to build a next-gen OLED television manufacturing facility, Universal Display simply reminded shareholders that OLED TV is still in its infancy, with most production being performed on pilot lines. What's more, keep in mind the same reports state Samsung was mulling whether to redirect its planned investment to instead boost production of small and medium OLED screens as it works to improve manufacturing yields on large displays.

Meanwhile, Samsung competitor and fellow Universal Display customer LG Display continues to make strides improving yields and lowering the prices of its own large-screen OLED TVs. Last month, LG Display confirmed plans to ramp up production for its own Gen 8 OLED TV facility in the second half of this year.

And finally, don't forget the potential for Universal Display's flexible OLED technology to soon find its way into a certain wearable iDevice through LG Display as a supplier.

Foolish final thoughts
All things considered, I think investors are currently being presented with a mind-boggling opportunity to buy shares of Universal Display on the cheap. For anyone who can stomach the volatility right now, the long-term rewards could be great.

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The article Why Universal Display Corporations Shareholders Should be Patient originally appeared on Fool.com.

Steve Symington owns shares of Universal Display. The Motley Fool recommends Universal Display. The Motley Fool 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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