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Universal Display Corp (NASDAQ:OLED)

CAPS Rating: 4 out of 5

Universal Display researches, develops, and sells organic light emitting diode (OLED) technologies and materials for the flat-panel display industry.

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Player Avatar TMFPencils (99.81) Submitted: 1/21/2014 10:43:36 PM : Outperform Start Price: $33.65 OLED Score: -14.69

Lots to like with Universal Display (OLED):

-- The company is a leading innovator in the field of organic light emitting diodes (OLED). In plain English, Universal Display develops and licenses "thin, lightweight and power-efficient solid-state devices that emit light." In even plainer English: the company develops the technology for flat panel displays on products such as smartphones and TVs.

-- With over 3000 final and pending patents, the company has a strong innovative edge in this field, most noticeably through its licensing deals with Samsung and LG. Universal Display is another classic example of an "enabling technology" business -- similar to InvenSense and Ambarella -- enabling businesses like Samsung and LG to continue to expand and improve their electronic product offerings.

-- The company's sales have expanded 793% since 2009 to $125.29 million. In the most recent quarter, revenue expanded 162.50% year-over-year. Universal Display's earnings have increased annually from -$20.51 million in 2009 to $21.55 million over the past four quarters. The profit margin is steadily increasing each year as well, most recently clocking in at a healthy 17.2%.

-- The company is now free cash flow positive. Operating cash flow production has annually increased over the past several years, coming in at $33.15 million over the past four quarters. In the first three quarters of 2013 the company produced $22.58 million in cash flow, outdoing the $17.75 million produced in the entirety of 2012.

-- $248.28 million in cash; no debt. That's the type of balance sheet I like to see.

-- Experienced, innovative, and involved management. According to Yahoo! Finance, insiders own 45% of all shares outstanding. CEO Steven Abramson, who has been with the company since 1996, owns the second largest number of shares (386,785) of all insiders; Ambramson was also awarded the Ernst & Young Entrepreneur Of The Year in 2013. Founder Sherwin Seligsohn remains on board as Chairman. CFO Sidney Rosenblatt has been with the company since 1995 and owns 267,574 shares. Chief Technological Officer Julia Brown joined the company in 1998 and owns 225,684 shares.

This is an experienced management team with a high level of insider ownership, and a proven knack for leading an innovative business that is now seeing incredible financial growth.

-- This is a $1.5 billion company trading at a P/E of 71. Considering: 1) the company's position as an innovative leader in OLED technology, 2) an experienced and involved management team, and 3) superb financial growth and cash flow production, I think the P/E of 71 is justified and will come down over time through continued earnings growth.

-- A cherry on top could be the announcement of the Apple iWatch, which will likely utilize LG technology (and, therefore, Universal Display's OLED technology). It is also rumored that Universal Display's technology will be utilized in Google Glass. I would not base an investment solely or largely on a hypothetical scenario, but it is likely Universal Display will continue to have a growing presence in the ever-bustling field of technology. Regardless of what company produces the next hot device -- whether it is Apple, Google, or someone else -- there is a good chance Universal Display's technology will be involved and the company will benefit.

All in all, I am glad to have found Universal Display. This company has a lot of pluses that I anticipate will lead to market-beating returns over the long run. Outperform.

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