Back to top

Image: Bigstock

Bull Of The Day: AU Optronics (AUO)

Read MoreHide Full Article

AU Optronics is a Zacks Rank #1 (Strong Buy) and has a clean slate of “A” for Value, Growth and Momentum Style Scores.  That alone should make you interested in this stock, but since it is now the Bull of the Day, I KNOW you are interested!

AUO makes LCD displays, as well as organic light emitting display (AMOLED) units. 

Have You Heard Of AUO?

I know a lot of people have been looking at the growth of OLED, but how many have heard that this sub $5 stock is playing in the same space?  I can tell you that Wall Street has heard of this company as there are more than 15 brokers covering the stock.  That tells me that pros on Wall Street have heard of this story so now would be a great time for the amateurs on Main Street to learn as well.

Bad News First

I don’t have access to the report, but I see that Bernstein downgraded the stock to Underperform from market perform on March 3.  Since that time, it has traded as low as $3.70 and as high as $3.96. The stock closed at $3.83 on March 3, 2017.

On February 13, JP Morgan downgraded the stock to Underweight from Neutral.  This is another report that I haven’t seen but I am sure the analyst had a good reason for the rating change.

Finally on the bad news front we have KGI securities also moving the stock to Underperform from Neutral on February 6.

Sales Reports

Unlike most domestic stocks, AU Optronics reports monthly sales numbers.  This keeps investors a little closer to the story but there is still ample room for an earnings surprise.  The monthly updates also tell the analysts if they should be moving their numbers, so this stock tends to have frequent earnings estimate updates.

On March 7, the company announced February sales data that showed a 2.7% sequential increase from the January level. On a year over year basis January 2017 saw an increase of 16.8% and February saw an increase of 41.6%.

Let me write that one down again.  On a year over year basis, February sales were an increase of 41.6%. That is huge and pretty much the tell you have been waiting for. 

Follow Brian Bolan on Twitter: @BBolan1

Most Recent Quarterly Report

The most recent quarterly report came out on Valentine’s Day (2/14) and the company beat the Wall Street Estimate of NT$0.65 by NT$0.28 by earning NT$0.93. Revenues of NT$91.85B for the quarter rose 10% from the year ago level and topped the NT$87.6B expectation.

The stock moved higher by a little more than 2% following the news.  Volume spiked to more than 4M shares, but it seems that expectations might have already been running high for the stock.  The first week of February sat the stock trading comfortably over $4 but has yet to get back over that level since Feb 9.

I dug into the report and found some information really hasn’t been widely discussed.

ASP’s and Big Screens

The first chart that I want to show you is ASP’s per square meter.  Now normally I don’t see ASP’s (average sales price) measured per square meter, so I am hoping that something is “lost in translation” (maybe this scene captures my lack of understanding https://www.youtube.com/watch?v=gXGXZiX0pCA).

The next slide that I wanted to share speaks to the screen sizes.  This is the number that will be key in the upcoming earnings release.  When the top two segments expanding we know we have found a winner.  The bigger the screen, the higher the price and almost always the higher the margin.

xx

A Quick Comparison

I know that AUO isn’t just in the OLED field, but it strikes me as odd that the market is richly rewarding one stock in that space and another is really being left out.  To me, that means there is some big opportunity to find out if there is some real justification for the lower multiples or if AUO just isn’t ready for prime time.

In terms of the numbers that the Zacks Research System (ZRS) gives me, I see AUO trading at 15x trailing and 3x forward earnings.  Compared that to OLED which hovers at 81x trailing and 57x forward and you start to think see the potential here.  Price to book has AUO at 0.6x while OLED is at 7.4x.  Price to sales has OLED at a stunning 19.6X while AUO is 0.4x.

Those are drastically different sets of numbers.  Keep in mind that AUO has posted some great sales numbers already in 2017 while the consensus is calling for OLED to see sales growth of about 22%.

Just take a look at this year to date performance chart of OLED and AUO.  AUO has moved up 7% this year according to Google Finance, but OLED has rocketed higher by more than 50%.  A reversion to the mean suggests that AUO is poised for a big move.

Zacks' 2017 IPO Watch List      

Before looking into the stocks mentioned above, you may want to get a head start on potential tech IPOs that are popping up on Zacks' radar. Imagine being in the first wave of investors to jump on a company with almost unlimited growth potential? This Special Report gives you the current scoop on 5 that may go public at any time.

One has driven from 0 to a $68 billion valuation in 8 years. Four others are a little less obvious but already show jaw-dropping growth. Download this IPO Watch List today for free >>                              


See More Zacks Research for These Tickers


Normally $25 each - click below to receive one report FREE:


Apple Inc. (AAPL) - free report >>

Universal Display Corporation (OLED) - free report >>