OLED Stock Study (6-21-23)

I recently did a stock study on Universal Display Corp. (OLED) with a closing price of $141.28. The original study is here.

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.

Over the past decade, this small-size company has grown sales at an annualized rate of 17.2%. EPS has grown 15.1% per year excluding ’14 and ’15 (including these years of fractional EPS results in 22.1% annualized rate). Lines are mostly up, straight, and parallel with sales declines in ’18 and EPS declines in [’14, ’15, and] ’18 and ’20. PTPM has led peer and industry averages while generally trending higher from 26.6% to 43.5% with a last-5-year mean of 38.1%.

Since ’15, ROE leads peer and industry averages while trending higher from 3.2% to 17.3% in ’22 with a last-5-year mean of 15.3%. Debt-to-Capital averages 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 6.43, and Value Line rates the company A for Financial Strength.

With regard to sales growth:

• CNN Business projects 6.8% YOY contraction and 6.0% growth per year for ’23 and ’22-’24 (based on 10 analysts).
• YF projects YOY 6.8% contraction and 20.6% growth for ’23 and ’24, respectively (10 analysts).
• Zacks projects YOY 7.3% contraction and 15.4% growth for ’23 and ’24, respectively (5).
• Value Line projects 13.3% annualized growth from ’22-’27.
• CFRA projects 3.0% YOY contraction and 4.1% growth per year for ’23 and ’22-’24, respectively.
• M* projects 5.0% growth per year for the next two years.

Given the projected contraction in ’23, I am forecasting to the low side at 6.0%.

With regard to EPS growth:

• CNN Business projects 15.0% YOY contraction and 5.0% growth per year for ’23 and ’22-’24, respectively (based on 10 analysts) along with 5-year annualized growth of 13.3%.
• MarketWatch projects annualized growth of 10.4% and 14.9% for ’22-’24 and ’22-’25, respectively (11 analysts).
• Nasdaq.com projects growth of 21.6% YOY and 21.8% per year for ’24 and ’23-’25 (5, 5, and 2 for ’23, ’24, and ’25).
• Seeking Alpha projects 4-year annualized growth of 14.9%.
• YF projects YOY 15.2% contraction and 30.0% growth for ’23 and ’24, respectively (10), along with 5-year annualized growth of 12.2%.
• Zacks projects YOY 12.5% contraction and 21.6% growth for ’23 and ’24, respectively (5), along with 5-year annualized growth of 15.7%.
• Value Line projects annualized growth of 8.1% from ’22-’27.
• CFRA projects 12.7% YOY contraction and 6.3% growth per year for ’23 and ’22-’24, along with 3-year CAGR of 15.0%.
• M* projects 30.0% long-term annualized growth.

I am forecasting just below the long-term-estimate range (mean of six: 15.7%) at 8.0%. Also to be conservative, I am using 2023 Q1 EPS of $4.18/share (annualized) rather than ’22 EPS of $4.40.

My Forecast High P/E is 35.0. Over the past decade, high P/E has ranged from 25.0 in ’13 to 88.4 in ’17 (excluding triple-digit outliers in ’15 and ’18) with a last-5-year mean of 68.9. The last-5-year-mean average P/E is 49.6. I am forecasting toward the bottom of the range (only ’13 is lower).

My Forecast Low P/E is 20.0. Over the past decade, low P/E has ranged from 15.6 in ’13 to 39.6 in ’16 (excluding upside outliers 82.6 in ’15 and 63.5 in ’18) with a last-5-year mean 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 $83.60 (based on $4.18/share initial value). This is 40.8% less than the previous close and 6.5% less than the 52-week low.

The stock has paid a dividend since 2017. Payout Ratio has increased from 5.5% that year to 27.3% in ’22 with a last-5-year mean of 20.5%. I am forecasting conservatively at 10.0% (only ’17 is less).

These inputs land OLED in the HOLD zone with a U/D ratio of 1.3. Total Annualized Return (TAR) is 9.0%.

PAR (using Forecast Average–not High–P/E) is less than I seek at 4.0%. If a healthy margin of safety (MOS) anchors this study, then I can proceed based on TAR instead.

To assess MOS, I compare my inputs with those of Member Sentiment (MS). Based on 211 studies over the past 90 days (my study and 62 outliers excluded), averages (lower of mean/median) for projected sales growth, EPS growth, Forecast High P/E, Forecast Low P/E, and Payout Ratio are 13.0%, 12.1%, 40.0, 25.0, and 16.1%, respectively. I am equal on Forecast Low P/E and lower on the other four inputs. Value Line projects an average annual P/E of 30.0, which is lower than MS (32.5) and higher than mine (27.5).

MS high (low) EPS is $7.70/share ($4.06/share) versus my $6.14 ($4.18). My high EPS is lower due to a lower growth rate.

MS LSPF of $89.40 implies a Forecast Low P/E of 22.0 (vs. the above-stated 25.0). This is 11.9% less than the default value $4.06 * 25.0 = $101.50, which results in more conservative zoning. It remains 6.9% higher than mine, however.

PEG ratio is another value check I have recently begun to monitor. Zacks reports PEG of 2.3 where 1.50 is generally regarded as the upper limit. Perhaps I should also monitor Relative Value = current P/E / 5-year-mean average P/E = 0.68. In this case, the latter looks attractive whereas the former does not.

MOS seems robust in this study.

I would look to re-evaluate OLED under $116/share.