Yahoo Finance As Universal Display (NASDAQ:OLED) climbs 4.1% this past week, investors may now be noticing the company's three-year earnings growth
In order to justify the effort of selecting individual stocks, it's worth striving to beat the returns from a market index fund. But if you try your hand at stock picking, your risk returning less than the market. We regret to report that long term Universal Display Corporation (NASDAQ:OLED) shareholders have had that experience, with the share price dropping 31% in three years, versus a market return of about 25%. Furthermore, it's down 12% in about a quarter. That's not much fun for holders.
On a more encouraging note the company has added US$310m to its market cap in just the last 7 days, so let's see if we can determine what's driven the three-year loss for shareholders.
See our latest analysis for Universal Display
There is no denying that markets are sometimes efficient, but prices do not always reflect underlying business performance. One flawed but reasonable way to assess how sentiment around a company has changed is to compare the earnings per share (EPS) with the share price.
During the unfortunate three years of share price decline, Universal Display actually saw its earnings per share (EPS) improve by 15% per year. Given the share price reaction, one might suspect that EPS is not a good guide to the business performance during the period (perhaps due to a one-off loss or gain). Or else the company was over-hyped in the past, and so its growth has disappointed.
Since the change in EPS doesn't seem to correlate with the change in share price, it's worth taking a look at other metrics.
The modest 1.0% dividend yield is unlikely to be guiding the market view of the stock. We note that, in three years, revenue has actually grown at a 8.7% annual rate, so that doesn't seem to be a reason to sell shares. It's probably worth investigating Universal Display further; while we may be missing something on this analysis, there might also be an opportunity.
The image below shows how earnings and revenue have tracked over time (if you click on the image you can see greater detail).
Universal Display is a well known stock, with plenty of analyst coverage, suggesting some visibility into future growth. So we recommend checking out this free report showing consensus forecasts
A Different Perspective
Universal Display provided a TSR of 15% over the last twelve months. But that return falls short of the market. On the bright side, that's still a gain, and it's actually better than the average return of 2% over half a decade This suggests the company might be improving over time. I find it very interesting to look at share price over the long term as a proxy for business performance. But to truly gain insight, we need to consider other information, too. For example, we've discovered 2 warning signs for Universal Display (1 is significant!) that you should be aware of before investing here.
If you would prefer to check out another company -- one with potentially superior financials -- then do not miss this free list of companies that have proven they can grow earnings.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on American exchanges.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
