OLED Stock Study (3-21-23)

I recently did a stock study on Universal Display Corp. (OLED) with a closing price of $144.88.

M* writes:

     > Universal Display Corp researches, develops and manufactures
     > organic light-emitting diode, or OLED, technologies for use
     > in displays for mobile phones, tablets, televisions, wearables,
     > personal computers, automotive interiors, and the solid-state
     > lighting market. OLED technologies are an alternative to a
     > light-emitting diode, or LED, technologies, in the solid-state
     > lighting market, and liquid crystal displays in the flat-panel-
     > display market. A large majority of the firm’s revenue is
     > generated in South Korea, with the rest coming from Japan,
     > China, the United States, and other countries across the world.

This small-sized company has grown sales at an annualized rate of 17.2% over the last decade. EPS has grown 15.1% per year over the last decade excluding ’14 and ’15 (inclusion of these years of fractional EPS results in 22.1% annualized rate). Lines are mostly up and parallel with sales declines in ’18 and EPS declines in ’18 and ’20 (accompanying the two years mentioned previously). Over the last 10 years, PTPM has generally trended higher from 26.6% to 43.5% with a last-5-year average of 38.1%. This leads peer and industry averages.

ROE has generally rallied since ’15 with a last-5-year average of 15.3%. This leads peer averages and slightly leads the industry. Debt-to-Capital has averaged 0.9% over the last five years as the company has zero long-term debt: much lower than peer and industry averages. Quick Ratio is 4.94, and Value Line rates the company A for Financial Strength.

I forecast 6% long-term annualized sales growth based on the following:

• CNN Business projects 5.5% YOY contraction and 7.3% growth per year for ’23 and ’22-’24, respectively (based on 12 analysts).
• YF projects YOY 6.4% contraction and 21.5% growth for ’23 and ’24, respectively (11 analysts).
• Zacks projects YOY 6.7% contraction and 16.9% growth for ’23 and ’24, respectively (4).
• Value Line projects 13.3% annualized growth from ’22-’27.
• CFRA projects 5% YOY contraction and 9.2% growth per year for ’23 and ’22-’24, respectively.
• M* projects 5.9% growth per year for the next two years.

Given the projected contraction in ’23, I am forecasting to the low side.

I forecast 8% long-term annualized EPS growth based on the following:

• CNN Business projects 15.9% YOY contraction and 6.7% growth per year for ’23 and ’22-’24 (based on 12 analysts) along with 5-year annualized growth of 13.3%.
• MarketWatch projects annualized growth of 12.2% and 13.2% for ’22-’24 and ’22-’25, respectively (13 analysts).
• Nasdaq.com projects growth of 24.7% YOY and 30.5% per year for ’24 and ’23-’25, respectively [4, 4, and 1 analyst(s) for ’23, ’24, and ’25].
• Seeking Alpha projects 4-year annualized growth of 14.8%.
• YF projects YOY 16.6% contraction and 35.1% growth for ’23 and ’24, respectively (11), along with 5-year annualized growth of 12.2%.
• Zacks projects YOY 14.6% contraction and 24.7% growth for ’23 and ’24, respectively (4), along with 5-year annualized growth of 15.6%.
• Value Line projects annualized growth of 8.1% from ’22-’27.
• CFRA projects 14.8% YOY contraction and 8.7% growth per year for ’23 and ’22-’24, respectively, along with a 3-year CAGR of 17%.
• M* projects 30% long-term annualized growth.

I am forecasting just below the range of six long-term estimates (mean: 15.7%).

My Forecast High P/E is 35. Excluding triple-digit outliers in ’15 and ’18, high P/E over the last 10 years has ranged from 25.0 (’13) to 88.4 (’17) with a last-5-year average of 68.9. I am forecasting toward the bottom of the range (only ’13 is lower).

My Forecast Low P/E is 20. Excluding two upside outliers (82.6 in ’15 and 63.5 in ’18), low P/E over the last 10 years has ranged from 15.6 (’13) to 39.6 (’16) with a last-5-year average of 30.2. I am forecasting toward the bottom of the range (only the ’13 value is lower).

My Low Stock Price Forecast (LSPF) is the default value of $88.00. This is 39.3% less than the previous close and 1.6% less than the 52-week low.

The stock has paid a dividend since ’17. Payout Ratio has increased from 5.5% that year to 27.3% in ’22 with a last-5-year average of 20.5%. I am forecasting low at 10%.

These inputs land OLED in the HOLD zone with an U/D ratio of 1.6. Total Annualized Return is 10.0%.

PAR (using Forecast Average, not High, P/E) is 5%, which is too low for a small company.

I look to Member Sentiment (MS) to assess margin of safety (MOS). Out of 323 studies (mine excluded) done in the last 90 days, projected sales growth, projected EPS growth, Forecast High P/E, Forecast Low P/E, and Payout Ratio average 13.9%, 15.1%, 47.2, 30.0, and 14.6%, respectively. My inputs are all substantially lower. Value Line projects an average annual P/E of 30, which is lower than MS (38.6) and higher than mine (27.5). All this is suggestive of a healthy MOS.

MS high and low EPS are $8.71/share and $3.73/share compared to my $6.47 and $4.40, respectively. Assuming most studies leave low EPS as TTM default, my $4.40 may be higher due to recent quarterly growth while my $6.47 is proportional to projected growth rate.

Given the robust MOS, I would look to establish an initial position under $122/share.