Have you ever noticed how small cap stocks rarely seem to dole out the huge gains investors - and the media - can't shut up about, then once that buzz dies down, the stocks nobody cares about anymore end up going hog-wild when nobody's looking? Yeah, well, you can add Universal Display Corporation (NASDAQ:OLED) to that list of stocks the market mis-times.
OLED was all the rage back in 2011 when the company was a $2.5 billion outfit that struggled to generate $61 million in revenue, and barely turned a profit that year. Yet, shares rallied a stunning 400% leading up to the early-2011 peak price of $63.58, as the market was sure Universal Display Corporation was poised to make a small fortune. Big mistake. Since then, OLED shares were more than cut in half as the company failed to meet ridiculously high expectations. Even at its current price of $34.50, the stock's still only worth 54% of its former highest value. Translation: The thrill is gone. Faith is lost. The party's over. Insert any other "thing's will never be the same again" cliche you want to here - the point is, traders think Universal Display blew its one and only chance to hand out big rewards. Thing is, it didn't. Slowly and quietly, while few have noticed, this stock has dropped hints that it's about to finally reward patient shareholders.
Just a little background... Universal Display Corporation makes materials and technologies used in flat panel screens. Its claim to fame is that its technology works on flexible devices, and can bend, twist, and flex without breaking. The display, made by organic matter, produces a higher-quality image than most - and the most common - LCD screens. Though it's not the only revenue-bearing technology OLED has, it's the highest-profile technology that Universal Display offers, and has been underscored by the fact that the Apple iWatch has a design patent on a wrap-around wristphone, while LG and Samsung have both announced an impending flexible smartphone screen. [LG is a competitor of OLED, while Samsung is a partner of Universal Display Corporation's.]
That's not the interesting part of the story here, however. It's the catalytic part, but not the interesting part.
The interesting, and bullish, part of this story is how as of August of last year OLED shares have pushed past the falling resistance line that's been in place since 2011. Better still, that uptrend materialized thanks to some help from a rising support line that's been in place since June of last year. In the meantime we've made higher highs, and it even looks like the 200-day moving average line (green) is providing support for the new rally.
The clincher is the fact that Universal Display shares have a ton of room to use before bumping into its new, rising resistance line.
With all of that being said, it's worth adding that Universal Display Corporation doesn't have to be a merely technical trade - the fundamentals are pointed in the right direction too. The pros expect the company to earn $1.07 per share of OLED in 2014, marking the fourth straight year of profits, and the fifth straight year of improved earnings. It's not a value idea by any means, with a trailing P/E of 49 and a forward-looking P/E of 31.7. But, with earnings expected to grow 53% this year and at a 55% clip next year, the frothy valuations seem quite normal.
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