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Written by Anders Bylund for The Motley Fool->
Universal Display missed Q1 earnings estimates by 41% and revenue targets by 16%, yet the stock jumped nearly 14% in the morning session.
The company announced a $400 million share buyback program, representing about 9% of its market cap.
Sometimes a "less bad than feared" quarter is all an oversold stock needs to rally.
Shares of Universal Display (NASDAQ: OLED) rose as much as 13.7% on Friday morning, reaching that peak at 9:40 a.m. ET. The technology researcher and critical materials distributor behind organic light-emitting diode (OLED) screens released first-quarter results last night, falling short of Wall Street's revenue and earnings targets. Management also set full-year sales guidance below the current Street view.
That combo is usually a recipe for plunging stock prices, not a double-digit spike. What's going on here?
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Smartphone sales are slowing amid skyrocketing memory chip prices, undermining Universal Display's largest target market. Durable blue OLED elements are still an upcoming growth driver, not a revenue-generating product. Consumers aren't buying a ton of high-end TV sets in this economy.
But none of these drawbacks are big surprises. The bad news was already priced in, and then some. Even after Friday's sharp price jump, Universal Display's shares are down 37% over the past six months. Trading at 18.5 times trailing earnings with a 2.2% dividend yield, Universal Display looks more like a classic value investment than a promising growth stock.
When a stock is beaten down that severely, expectations get reset. Investors aren't comparing results to analyst estimates anymore; they're comparing them to worst-case fears.
On that note, Universal Display gave investors several reasons to cheer.
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Anders Bylund has positions in Universal Display. The Motley Fool recommends Universal Display. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
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