Universal Display’s stock price has taken a beating over the past six months, shedding 30.8% of its value and falling to $100.62 per share. This may have investors wondering how to approach the situation.
Is now the time to buy Universal Display, or should you be careful about including it in your portfolio? Check out our in-depth research report to see what our analysts have to say, it’s free.
Why Is Universal Display Not Exciting?
Despite the more favorable entry price, we don't have much confidence in Universal Display. Here are two reasons we avoid OLED and a stock we'd rather own.
1. 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 4.2%, a slight deceleration versus its 8.7% annualized growth for the past five years. This projection is underwhelming and implies its products and services will face some demand challenges.
2. Free Cash Flow Margin Dropping
If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.
As you can see below, Universal Display’s margin dropped by 3 percentage points over the last five years. Continued declines could signal it is in the middle of an investment cycle. Universal Display’s free cash flow margin for the trailing 12 months was 23.7%.
Final Judgment
Universal Display’s business quality ultimately falls short of our standards. After the recent drawdown, the stock trades at 21.1× forward P/E (or $100.62 per share). This valuation is reasonable, but the company’s shakier fundamentals present too much downside risk. We're pretty confident there are more exciting stocks to buy at the moment. We’d suggest looking at the most entrenched endpoint security platform on the market.
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