Universal Display (OLED)

OLED provider Universal Display (NASDAQ:OLED) fell short of the markets revenue expectations in Q3 CY2025, with sales falling 13.6% year on year to $139.6 million. On the other hand, the company’s outlook for the full year was close to analysts’ estimates with revenue guided to $675 million at the midpoint. Its GAAP profit of $0.92 per share was 21.6% below analysts’ consensus estimates.

Company Overview

Serving major consumer electronics manufacturers, Universal Display (NASDAQ:OLED) is a provider of organic light emitting diode (OLED) technologies used in display and lighting applications.

Competitors offering OLED or competing lighting technologies include Sumitomo Chemical (TSE:4005), Idemitsu Kosan (TSE:5019), and Cynora.

A company’s long-term performance is an indicator of its overall quality. Any business can experience short-term success, but top-performing ones enjoy sustained growth for years. Over the last five years, Universal Display grew its sales at a solid 10.5% compounded annual growth rate. Its growth beat the average semiconductor company and shows its offerings resonate with customers, a helpful starting point for our analysis. Semiconductors are a cyclical industry, and long-term investors should be prepared for periods of high growth followed by periods of revenue contractions.

Long-term growth is the most important, but short-term results matter for semiconductors because the rapid pace of technological innovation (Moore's Law) could make yesterday's hit product obsolete today. Universal Display’s annualized revenue growth of 4.4% over the last two years is below its five-year trend, but we still think the results were respectable.

This quarter, Universal Display missed Wall Street’s estimates and reported a rather uninspiring 13.6% year-on-year revenue decline, generating $139.6 million of revenue.

Looking ahead, sell-side analysts expect revenue to grow 12.1% over the next 12 months, an improvement versus the last two years. This projection is above the sector average and indicates its newer products and services will spur better top-line performance.

Days Inventory Outstanding (DIO) is an important metric for chipmakers, as it reflects a business’ capital intensity and the cyclical nature of semiconductor supply and demand. In a tight supply environment, inventories tend to be stable, allowing chipmakers to exert pricing power. Steadily increasing DIO can be a warning sign that demand is weak, and if inventories continue to rise, the company may have to downsize production.

This quarter, Universal Display’s DIO came in at 545, which is 132 days above its five-year average, suggesting that the company’s inventory has grown to higher levels than we’ve seen in the past.

In the semiconductor industry, a company’s gross profit margin is a critical metric to track because it sheds light on its pricing power, complexity of products, and ability to procure raw materials, equipment, and labor.

Universal Display’s gross margin is one of the best in the semiconductor sector, and its strong pricing power is a direct result of its differentiated products and technological expertise. As you can see below, it averaged an elite 75.4% gross margin over the last two years. Said differently, roughly $75.44 was left to spend on selling, marketing, R&D, and general administrative overhead for every $100 in revenue.

This quarter, Universal Display’s gross profit margin was 74.6%, marking a 1.7 percentage point decrease from 76.3% in the same quarter last year. On a wider time horizon, the company’s full-year margin has remained steady over the past four quarters, suggesting its input costs (such as raw materials and manufacturing expenses) have been stable and it isn’t under pressure to lower prices.

Operating margin is one of the best measures of profitability because it tells us how much money a company takes home after procuring and manufacturing its products, marketing and selling those products, and most importantly, keeping them relevant through research and development.

Universal Display’s operating margin has been trending down over the last 12 months, but it still averaged 37.8% over the last two years, elite for a semiconductor business. This shows it’s an well-run company with an efficient cost structure, and its solid historical revenue growth also suggests its margin dropped because it ramped up investments to capture market share, a strategy that seems to have paid off so far.

Analyzing the trend in its profitability, Universal Display’s operating margin decreased by 6.6 percentage points over the last five years. This raises questions about the company’s expense base because its revenue growth should have given it leverage on its fixed costs, resulting in better economies of scale and profitability.

This quarter, Universal Display generated an operating margin profit margin of 30.9%, down 10.6 percentage points year on year. Since Universal Display’s operating margin decreased more than its gross margin, we can assume it was less efficient because expenses such as marketing, R&D, and administrative overhead increased.

Revenue trends explain a company’s historical growth, but the long-term change in earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.

Universal Display’s EPS grew at a decent 15.7% compounded annual growth rate over the last five years, higher than its 10.5% annualized revenue growth. However, we take this with a grain of salt because its operating margin didn’t improve and it didn’t repurchase its shares, meaning the delta came from reduced interest expenses or taxes.

In Q3, Universal Display reported EPS of $0.92, down from $1.40 in the same quarter last year. This print missed analysts’ estimates, but we care more about long-term EPS growth than short-term movements. Over the next 12 months, Wall Street expects Universal Display’s full-year EPS of $4.65 to grow 13.3%.

Free cash flow isn't a prominently featured metric in company financials and earnings releases, but we think it's telling because it accounts for all operating and capital expenses, making it tough to manipulate. Cash is king.

Universal Display has shown terrific cash profitability, and if sustainable, puts it in an advantageous position to invest in new products, return capital to investors, and consolidate the market during industry downturns. The company’s free cash flow margin was among the best in the semiconductor sector, averaging 29.6% over the last two years.

Taking a step back, we can see that Universal Display’s margin dropped by 5.6 percentage points over the last five years. Rising cash conversion would be ideal, but we’re willing to live with Universal Display’s performance for now because it’s still one of the more cash generative and investable businesses in its space. Continued declines could signal it is in the middle of an investment cycle.

Universal Display’s free cash flow clocked in at $84.34 million in Q3, equivalent to a 60.4% margin. This result was good as its margin was 19.4 percentage points higher than in the same quarter last year. Its cash profitability was also above its two-year level, and we hope the company can build on this trend.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? Enter ROIC, a metric showing how much operating profit a company generates relative to the money it has raised (debt and equity).

Universal Display’s five-year average ROIC was 37.2%, beating other semiconductor companies by a wide margin. This illustrates its management team’s ability to invest in attractive growth opportunities and produce tangible results for shareholders.

One of the best ways to mitigate bankruptcy risk is to hold more cash than debt.

Universal Display is a profitable, well-capitalized company with $603 million of cash and no debt. This position is 10.2% of its market cap and gives it the freedom to borrow money, return capital to shareholders, or invest in growth initiatives. Leverage is not an issue here.

We struggled to find many positives in these results. Its revenue missed and its EPS fell short of Wall Street’s estimates. Overall, this quarter could have been better. The stock traded down 14.4% to $115.83 immediately after reporting.

Updated: December 4, 2025 at 9:29 PM EST

The latest quarterly earnings matters, sure, but we actually think longer-term fundamentals and valuation matter more. Investors should consider all these pieces before deciding whether or not to invest in Universal Display.

There are things to like about Universal Display. To kick things off, its revenue growth was solid over the last five years. And while its cash profitability fell over the last five years, its admirable gross margins indicate robust pricing power. On top of that, its impressive operating margins show it has a highly efficient business model.

Universal Display’s P/E ratio based on the next 12 months is 23x. Looking at the semiconductor landscape right now, Universal Display trades at a pretty interesting price. If you’re a fan of the business and management team, now is a good time to scoop up some shares.

Wall Street analysts have a consensus one-year price target of $168.78 on the company (compared to the current share price of $121.71), implying they see 38.7% upside in buying Universal Display in the short term.