Shareholders of Universal Display would probably like to forget the past six months even happened. The stock dropped 31.2% and now trades at $150. This was partly due to its softer quarterly results and might have investors contemplating their next move.
Given the weaker price action, is now the time to buy OLED? Find out in our full research report, it’s free.
Why Are We Positive On Universal Display?
Serving major consumer electronics manufacturers, Universal Display (NASDAQ:OLED) is a provider of organic light emitting diode (OLED) technologies used in display and lighting applications.
1. Long-Term Revenue Growth Shows Strong Momentum
A company’s long-term sales performance can indicate its overall quality. Any business can put up a good quarter or two, but many enduring ones grow for years. Over the last five years, Universal Display grew its sales at a solid 11.5% compounded annual growth rate. Its growth beat the average semiconductor company and shows its offerings resonate with customers. Semiconductors are a cyclical industry, and long-term investors should be prepared for periods of high growth followed by periods of revenue contractions (which can sometimes offer opportune times to buy).
2. Elite Gross Margin Powers Best-In-Class Business Model
Gross profit margin is a key metric to track because it shows how much money a semiconductor company gets to keep after paying for its raw materials, manufacturing, and other input costs.
Universal Display’s gross margin is one of the best in the semiconductor sector, and its differentiated products give it strong pricing power. As you can see below, it averaged an elite 76% gross margin over the last two years. Said differently, roughly $76.01 was left to spend on selling, marketing, R&D, and general administrative overhead for every $100 in revenue. 
3. Operating Margin Reveals a Well-Run Organization
Operating margin is one of the best measures of profitability because it tells us how much money a company takes home after procuring and manufacturing its products, marketing and selling those products, and most importantly, keeping them relevant through research and development.
Universal Display has been a well-oiled machine over the last two years. It demonstrated elite profitability for a semiconductor business, boasting an average operating margin of 39.5%. This result isn’t surprising as its high gross margin gives it a favorable starting point.
Final Judgment
These are just a few reasons why we think Universal Display is a high-quality business. After the recent drawdown, the stock trades at 28.4× forward price-to-earnings (or $150 per share). Is now the time to initiate a position? See for yourself in our comprehensive research report, it’s free.
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