Universal Display Corporation Stock Forecast

Just a few key technologies are responsible for the digital revolution that has transformed the face of society in the past decade. One such technology is the light-emitting diode (LED). LEDs are semiconductor devices that emit visible light when stimulated by an electric current.

When assembled into arrays, these tiny LEDs form the basis of the displays that are used for every computer and smartphone on the planet. It’s no wonder that the global LED industry is predicted to reach $57 billion by 2023, with a strong annual growth rate of 9 percent.

For investors who are looking to gain a foothold in the LED market, Universal Display Corporation [NASDAQ: OLED] seems like an attractive opportunity right now. Shares of UDC have had a banner year thus far, more than doubling in value since January. But will this growth continue in the future, or is UDC stock headed for a crash?

What Does Universal Display Corporation Do?

Universal Display Corporation [NASDAQ: OLED] is an LED developer and manufacturer that was founded in 1994 and is currently headquartered in Ewing, New Jersey. Steven V. Abramson currently serves as the company’s president and CEO, and has been on the UDC board of directors since 1996.

In particular, UDC is known for manufacturing organic light-emitting diodes (OLEDs). Standard LEDs are too large to be used as individual pixels in a display. In an LCD (liquid crystal display) television, for example, each LED is used as the backlight for a small cluster of pixels.

OLEDs are fundamentally different from standard LEDs in terms of their construction: they are made of organic materials, which enables them to be much thinner and more flexible. Due to their smaller size, each OLED can be used as a single pixel, which makes the display much crisper and sharper.

The main competitors of UDC include Nanosys, which uses nanotechnology to create products for digital displays; Nanoco, another nanotechnology display company; and Novaled, a German manufacturer of OLEDs.

Is Universal Display Corporation a Buy?

Investors might understandably be attracted to UDC stock, based on its excellent performance year-to-date. OLED shares soared by 28 percent in June, and then gained another 12 percent in July.

The company’s Q2 2019 financial report saw revenue of $118 million, which is a 110 percent improvement year over year. These strong numbers were largely powered by a number of accelerated orders from Chinese customers that were originally expected for the second half of the year.

Another good piece of news is that Universal Display Corporation is flush with cash right now: $527 million in cash, cash equivalents, and short-term investments, according to the company’s balance sheets.

In order to put this money to good use, UDC launched a new corporate venture subsidiary UDC Ventures in May. UDC plans to use this venture arm to invest in OLED technology in particular, and organic electronics and materials science in general.

With more than 5,000 existing and pending patents, Universal Display Corporation [NASDAQ: OLED] has a near-stranglehold on the OLED market right now.

In addition, the company has long-term material supply and license agreements with its two biggest customers, Samsung and LG, which means that business should continue to boom into the foreseeable future.

Although UDC expects business from China to cool off in the rest of the year, the long-term picture looks bright. According to CEO Abramson, there are 10 Chinese OLED manufacturing plants expected to open in the next few years alone, creating an exciting potential steady source of revenue for UDC.

What are the Risks of Buying Universal Display Corporation?

Despite UDC’s stellar performance thus far in 2019, would-be investors also need to temper their expectations and consider the potential downsides of buying UDC stock.

For one, the deals with Chinese customers are exciting news for UDC, but the brewing trade war between the U.S. and China could mean serious trouble ahead. The Trump administration’s 25 percent tariffs on Chinese goods will include technology such as LEDs, and China is expected to retaliate in kind.

In November 2018, shares of UDC dropped by 27 percent in their worst day in 24 years. Analysts said the plunge, which came after disappointing quarterly earnings, was partly due to industry concerns about U.S.-China economic tensions and tariffs.

Another risk factor for Universal Display Corporation [NASDAQ: OLED] is if its major customers decide to take their display manufacturing in house.

In March 2018, UDC stock fell by 14 percent after a report that UDC’s customer Apple was experimenting with an in-house micro-LED solution for manufacturing its own displays.

In June, UDC stock again slid by 3.5 percent after a report that Apple would use cheaper LCD displays for its next iPhone line, rather than the OLED displays used in the iPhone X.

Universal Display Corporation Stock Forecast: The Bottom Line

Although concerns about a potential trade war aren’t unfounded, the outlook of Universal Display Corporation stock looks bright for the near future.

Potential investors in UDC stock should be watching to make sure that the company’s dominant performance so far in 2019 isn’t just a fluke, and that sales and profitability remain strong for the remainder of the year.

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The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.