In late 2019, things were looking disastrous for Nokia (NYSE:NOK) stock. The share price dropped nearly 30% in late October. But in what may be part of the “January Effect” that is captivating investors, Nokia shares are enjoying a nice rally. The stock is up nearly 10% and is back up to over $4 per share as of this writing.
One of the reasons behind investor optimism is the anticipated rollout of 5G technology. For Nokia, it may be one of the last chances it has to break a decade long downtrend.
How Far Have the Mighty Fallen?
I’m “my first cellular phone was a Nokia” years old.
But in the mid -000s, it seemed like everybody had a Nokia. And as my fellow InvestorPlace contributor Brad Moon laid out, Nokia was the dominant player in the market. In 2010, approximately one out of every three smartphones were made by Nokia. That year, Nokia shipped 100 million smartphones, doubling up Apple (NASDAQ:AAPL) and dwarfing Samsung. The company had revenue of $57 billion.
Just two years later, a series of miscalculations knocked the company’s market share down to 5%. Things got so bad that in 2014, Nokia got out of the smartphone business altogether. And as a primary revenue source vanished, so did the company’s stock price. And based on the first three quarters of 2019, the company’s revenue will be less than half of what is was at the start of the previous decade.
With that said, 5G is giving Nokia a chance to get back in the game because it can now deliver a range of 5G equipment, along with the company’s expertise, without relying on a product such as a smartphone.
At the end of November, Nokia had secured 50 commercial 5G deals worldwide. By the beginning of January, that number had risen to 63 deals. In a press release, Tommi Uitto, president of Mobile Networks at Nokia stated it was “the only network supplier whose 5G technology has been contracted by all four nationwide operators in the U.S., all three operators in South Korea and all three nationwide operators in Japan.”
That may be true, but as David Moadel wrote for InvestorPlace, 5G is a battleground and the company faces stiff competition from companies such as Huawei and Ericsson (NASDAQ:ERIC).
And Speaking of Smartphones…
Nokia has been promising that they would launch an affordable 5G smartphone in early 2020. Unfortunately, that launch has now been delayed until late 2020 as Nokia wants to ensure that its Nokia 9.2 PureView will be powered by the Qualcomm (NASDAQ:QCOM) Snapdragon 865 chipset.
On the one hand, this is a smart strategy for Nokia. On the other hand, it’s a delay. A missed deadline. A false start. And the company can’t afford a lot of those right now.
Will 5G Propel Nokia Stock to New Heights?
The problem for Nokia is that it is increasingly looking like much of its 5G boost is already contained in the growth the stock made in January. Analysts are still relatively bullish on the stock: one analyst has even given the stock a strong buy rating. But I’m more wary about the price target.
Six months ago, analysts were forecasting a $6.94 price target which gave the stock just over a 36% upside. And 30 days ago, when Nokia stock was cratering, analysts were still giving NOK a $5.29 price target, which gave the stock a 47% upside. Today, that price target is down to $4.90, an increase of just over 16% from the stock’s current levels.
Reading between the lines, it seems the closer 5G is to becoming a reality, the less enthusiastic analysts are about NOK stock.
As of this writing, Chris Markoch did not have a position in any of the aforementioned securities.
