Over the past six months, Universal Display’s stock price fell to $82.23. Shareholders have lost 16.6% of their capital, which is disappointing considering the S&P 500 has climbed by 13.6%. This might have investors contemplating their next move.
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Why Is Universal Display Not Exciting?
Even with the cheaper entry price, we’re passing on Universal Display for now. Here are three reasons we avoid OLED, plus one stock we’d rather own.
1. Long-Term Revenue Growth Disappoints
A company’s long-term sales performance is one signal of its overall quality. Any business can put up a good quarter or two, but the best consistently grow over the long haul. Over the last five years, Universal Display grew its sales at a mediocre 3% compounded annual growth rate. This fell short of our benchmark for the semiconductor sector. Semiconductors are a cyclical industry, and long-term investors should be prepared for periods of high growth followed by periods of revenue contractions.
2. Projected Revenue Growth Is Slim
Forecasted revenues by Wall Street analysts signal a company’s potential. Predictions may not always be accurate, but accelerating growth typically boosts valuation multiples and stock prices while slowing growth does the opposite.
Over the next 12 months, sell-side analysts expect Universal Display’s revenue to rise by 8.2%. Although this projection implies its newer products and services will catalyze better top-line performance, it is still below average for the sector.
3. EPS Barely Growing
Analyzing the long-term change in earnings per share (EPS) shows whether a company’s incremental sales were profitable — for example, revenue could be inflated through excessive spending on advertising and promotions.
Universal Display’s unimpressive 1.1% annual EPS growth over the last five years aligns with its revenue performance. This tells us it maintained its per-share profitability as it expanded.
Final Judgment
Universal Display isn’t a terrible business, but it isn’t one of our picks. After the recent drawdown, the stock trades at 18.2× forward P/E (or $82.23 per share). While this valuation is reasonable, we don’t really see a big opportunity at the moment. We’re pretty confident there are more exciting stocks to buy at the moment. We’d recommend looking at the most entrenched endpoint security platform on the market.
Stocks We Like More Than Universal Display
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