It wasn’t all that long ago that Finnish tech stock Nokia (NYSE:NOK) was headed for oblivion. From 2007 all the way to its midyear lows, it had cratered a mind-blowing 95%, mostly thanks to Apple (NASDAQ:AAPL) and Android-powered products making Nokia’s gadgets appear old hat.
Since bottoming out in July, however, NOK shares have more than doubled from $1.63 to prices currently above $4, which included a nice push to start the new year.
Tech comebacks are a rarity, but could Nokia actually keep pulling off this strong recovery, and thus, should you buy Nokia stock? Well, to decide, we’ll take a look at the pros and cons:
Product: It’s still too early to tell whether Nokia’s Lumia models are a hit, but there’s a few positive signs. For one, it’s getting traction in China, where the 920T model sold out in its debut (within two hours). Nokia has a long history in China, it has forged key relationships with mega carriers like China Mobile (NYSE:CHL), and it knows how to develop low-cost handsets — a must in China. The Lumia also is going gangbusters in Europe, and the 920 model is even seeing uptake in the U.S. as a top seller on Amazon.com (NASDAQ:AMZN).
The Third Option: Mega-carriers like AT&T (NYSE:T) and Verizon (NYSE:VZ) always are looking for ways to gain leverage, and one approach is to provide options that go beyond Apple iPhones and Google (NASDAQ:GOOG) Android phones. With more competition, the carriers are likely to get better deals, which means a proven company like Nokia could get extra attention from these wireless providers.
The Microsoft Relationship: Of course, Nokia is completely reliant on the Windows Phone platform — a risky strategy, no doubt, but it could work. Microsoft (NASDAQ:MSFT) is highly motivated to be a player in the mobile market and has the resources to make it happen. Nokia should benefit from huge expenditures in marketing and promotion. At the same time, Microsoft will continue to invest heavily in the Windows platform to make sure the feature set is competitive and to cultivate a rich developer community for apps.
OS Risk: Microsoft is working hard to get other manufacturers, such as Samsung (PINK:SSNLF), to adopt the Windows Phone platform. Over time, this could make it tougher for Nokia to stand out from the crowd. But perhaps more worrisome is that Microsoft reportedly already has a backup plan — making smartphones itself.
Culture: Nokia is yet another classic case of how a tech company can easily lose out thanks to leadership. The company had plans for touch-based smartphone more than a decade ago, for instance, but it has long been hampered by a massive bureaucracy. CEO Stephen Elop has taken actions to cut back on costs and drag, but it still will take time to get the organization into shape.
Competition: In addition to the aforementioned Apple and Samsung, as well as HTC and others, Research In Motion (NASDAQ:RIMM) could be a wild card. The company plans to launch its new models later in the month, and if it gains traction, Nokia could see its recent momentum start to fade away.
While Nokia’s rally has been eye-popping, it’s not without substance. The company is a realistic third option for the major carriers, and it’s increasingly looking like the Lumia is a solid offering.
And despite the rebound reaching triple-digit percentages, NOK still could have more upside. Nokia stock’s valuation remains fairly low at a price-to-sales ratio of just 0.35, while offering a healthy dividend yield of 4.5%. Plus, the company also has strong core assets like a mapping business and a broad patent portfolio.
So, should you buy NOK? Yes — at least in the short-term, the pros still outweigh the cons.
Tom Taulli runs the InvestorPlace blog IPO Playbook, a site dedicated to the hottest news and rumors about initial public offerings. He is also the author of “How to Create the Next Facebook” and “High-Profit IPO Strategies: Finding Breakout IPOs for Investors and Traders.” Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.