I may have egg on my face for being bearish on Nokia Corp (ADR) (NYSE:NOK), but I’m still not convinced. Since I last wrote about NOK stock, it was trading at $5.22. Currently, Nokia shares are hovering around the $5.40 mark, or roughly a 3.4% profit. That’s a pretty big gain for less than a month. The question is, will sentiment for Nokia stock last?
This is the point where we need to stop playing games and get down to brass tacks. What are we really buying when we acquire NOK stock?
Largely, it seems as if Nokia is a play onto itself. What I mean is that investors are looking for the next great comeback story. With NOK stock up nearly 13% for the year, it’s a perfect candidate. The problem is that enthusiasm alone doesn’t reduce the hefty risks of Nokia stock.
NOK Stock Is Going Back to the Future
According to InvestorPlace writer Tom Taulli, NOK stock is mostly driven by the buzz towards the revamped Nokia 3310. Basically, the 3310 is the classic portable device that catapulted the cell-phone craze.
Prior to the original release, cell phones were fairly bulky affairs. And before that, cell phones were more appropriate platforms for calling in air strikes than actual conversations. Although it wasn’t a beneficiary, Nokia inspired the broader concept behind the Apple Inc. (NASDAQ:AAPL) “iPhone.”
With the new 3310, NOK stock is a bet on the wave of consumer nostalgia that has unexpectedly impacted the retail markets. For instance, Nintendo Co., Ltd (ADR) (OTCMKTS:NTDOY) has sold through its NES Classic Edition at the MSRP of $60. If you want to get one, you have to suck it up and pay a fat premium. We’re not talking a mere 10% or 20% either. Avid gamers can expect to add an extra zero behind these numbers — and they’re doing just that!
Definitely, this trend provides confidence for investors of Nokia stock. At the very least, the product engineers behind the 3310 are breathing a sigh of relief. But that’s not all — the revitalized classic features extraordinary consumer-centric functionality. Key among them is the battery that can go without a recharge for 30 days on standby mode. Try that with a Samsung Electronics (OTCMKTS:SSNLF) device! Then again, maybe not.
Perhaps the best feature out of all this is the price. At 49 euros — or the equivalent of $53.25 USD — the Nokia 3310 is a steal. But will this translate to further substantive growth for NOK stock? Again, I have my doubts.
Nokia Stock: Nostalgia Play Doesn’t Fix the Ugly Now!
First, as it relates to their retro-new phone, the nostalgia play doesn’t work for all electronic devices. It does for Nintendo because they produce products for personal entertainment and escapism. Telecommunications, on the other hand, isn’t exactly a fringe purchase.
People are actually going to use the 3310 for its intended purpose — or that’s how it was marketed. But with it being limited towards the antiquated 2G network, NOK stock is deliberately fighting an uphill battle.
Second, I don’t like the fundamentals at all. Surely, that has to be a concern for traders that are on the brink of hitting the buy button. Operating margins are deep in the red, as are net margins. Additionally, return on equity and return on assets severely lag the global communications industry. About the only thing good about NOK stock is the revenue growth, but that’s due to the Alcatel Lucent acquisition.
Finally, the technical performance of Nokia stock doesn’t inspire confidence. Its outsized burst that began in late 2016 gifted speculators with considerable profits. However, we have yet to see the ultimate test: Whether it can break away from its nearly three-year bearish trend channel.
The dilemma for NOK stock is that investors have seen this story before. Whenever they thought it was different this time, they got punished. Maybe Nokia stock is like a broken clock — it’s always right twice in a day. That might bring the speculators out of the woodwork. However, for those that can’t afford to take too many hits, Nokia has too many liabilities.
As of this writing, Josh Enomoto did not hold a position in any of the aforementioned securities.
