How Universal Display Corp. Gained More Than 30% in 2013

Apple, Universal Display, Samsung, LG Display

Image source: Universal Display.

With mere hours remaining in the calendar year, shares of Universal Display Corp.  have risen nearly 32% in 2013. And after the stock's harrowing 33% plunge in 2012, you'd think I'd be perfectly happy as a longtime Universal Display shareholder.

But I'd be lying if I said this year has been entirely stress-free.

Remember, thanks in part to a chunky revenue stream given its twice-per-year $20 million royalty payment from Samsung -- up from $15 million last year, by the way -- Universal Display investors have endured more than their fair share of unmerited volatility in 2013.

What's more, Universal Display stock has just barely managed to outpace the S&P 500's stellar gains when you include dividends:

OLED Total Return Price Chart

OLED Total Return Price data by YCharts.

To be sure, the year started out well enough: In February, UDC customers Samsung and LG Display  started by putting aside their differences to better compete in the OLED market with the folks at Sony and Panasonic. The Japanese rivals had not only just unveiled their own next-generation 56-inch OLED television prototypes, but also announced a collaborative effort to develop and commercialize their own offerings in a massive game of catch-up.

Just last week, however, shares of Universal Display drifted downward after Sony and Panasonic abandoned those plans, saying OLED TVs simply didn't "deliver the growth originally envisioned, and are unlikely to be commercially viable in the near future."

Nonetheless, both LG Display and Samsung brought their own respective curved OLED televisions to market in August. And though they started at incredibly high prices, the cost of OLED televisions has steadily fallen as economies of scale continue to kick in for the Korean juggernauts. Then in October, both companies unveiled their own curved OLED smartphones, while Samsung Display went so far as to predict flexible OLED displays will be found in as many as 40% of all smartphones by 2018. 

What's more, not all of this year's encouraging early developments have fallen through. In February, I raised my eyebrows when Applequietly hired a senior OLED expert away from LG Display, wondering if the development might portend bigger things for Universal Display's flagship technology down the road.

Sure enough, following various hints throughout the year, Apple appears closer than ever to implementing OLED in at least one of its devices. To be specific, early last month various reports speculated that LG Display could be near to closing a deal to supply small OLED screens to Apple for a late-2014 launch of its long-awaited iWatch product.

Of course, the minuscule amount of OLED material required for each iWatch wouldn't necessarily have an enormous impact on Universal Display's revenue stream. But merely to have Apple on board in the first place would be a massive vote of confidence, especially given the uncertainty generated only a few months prior by noted short-sellers of Universal Display stock.

You should also keep in mind that shares of Universal Display jumped more than 25% in November -- good for the bulk of its 2013 gains, mind you -- after it said third-quarter revenue had nearly tripled to $32.5 million.

That performance was largely owed to Universal Display's strong commercial material sales, which rose 176% over the previous year to $30.3 million. As a result -- and for the first time during a quarter in which it did not receive Samsung's license payment since signing its long-term deal in mid-2011 -- that translated to net income for UDC of $5.5 million, or $0.12 per share, easily besting expectations for a $0.04-per-share loss on sales of only $21.76 million.

Better yet, Universal Display also increased its full-year 2013 guidance, calling for revenue of $142 million to $144 million, compared to its previous $110 million to $125 million range.

All things considered, that's why it appears Universal Display is only just getting started, and why investors are hoping to hear great things when the company announces fourth-quarter and full-year 2013 financial results in February.

When that happens, you can be sure I'll still be holding on to my shares to reap the rewards.

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