Here’s why Universal Display Stock crashed on Friday

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What happened

Actions of Universal display (NASDAQ: OLED) fell as much as 13.5% on Friday, bouncing off that bottom around 11:15 a.m. EDT. The developer and reseller of organic light-emitting diode (OLED) panel technologies and materials reported mixed results for the second quarter on Thursday evening. Investors skipped a solid income reading to focus instead on weak bottom line and relatively modest short-term income prospects.

So what

Second-quarter Universal Display sales jumped 124% year-over-year to $ 130 million. Earnings fell from $ 0.02 to $ 0.85 per share. Your average analyst was looking for earnings close to $ 0.87 per share on sales of around $ 127 million.

Looking ahead, management has chosen to leave its annual revenue target unchanged at around $ 545 million. Here, Street’s current consensus is for $ 559 million, just below the high end of the given guidance range.

Image source: Getty Images.

Now what

The muscular year-over-year comparisons have impressed no one, as the period last year represented the darkest days of business operations in the shadow of COVID-19 lockdowns. Maintaining the sales target for the full year while posting strong second quarter results means that the next two quarters could produce weaker results. CFO Sid Rosenblatt said so when calling the results.

“We are comfortable with our current directions,” said Rosenblatt. “At the same time, there are uncertainties related to the chip shortage and the pandemic that we are monitoring to see if it will impact it.”

In other words, management is taking a conservative view of the near-term future due to the double cloud of another COVID peak and an ongoing semiconductor shortage. Universal Display’s OLED displays rely on a variety of chips, both to drive the display panels themselves and to power various electronic devices – like TVs, smartphones, cars, fitness trackers – where they are installed.

I don’t mind that the executives of Universal Display outline their business plans very carefully. The long-term picture has not changed and you can now buy the stock more than 20% below the 52 week highs in January. I think it’s a good idea to buy more Universal Display shares at a lower price.

This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are heterogeneous! Questioning an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.


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