Low-priced stocks have been under a hellish fire, as investors dump everything in this latest bout of volatility. Gold, stocks, cryptocurrencies — you name it and it’s being sold right now. Nokia (NYSE:NOK) is no exception to that observation, with NOK stock down about 40% from its February highs.
Even worse, Nokia shares have fallen almost 60% from the 2019 highs. Shares most recently ended the week near $2.75 a share, its lowest weekly close since 2013.
Of course, this type of breakdown has dealt a serious blow to the technicals. That situation can either worsen or be repaired, and given the market environment, it’s hard to know which.
Let’s take a closer look at Nokia to see if this stock is really a buy right now.
Buying Nokia is a play on 5G, and investors hope that new partnerships will drive growth for the company. Some of its recent partnerships include Marvell Technology (NASDAQ:MRVL) and Intel (NASDAQ:INTC).
With 5G being the catalyst for Nokia, investors fear a slow or delayed rollout, along with lower 5G investments from other companies.
Based on comments from AT&T (NYSE:T), Verizon (NYSE:VZ) and others, a delay does not seem to be in the cards yet. But with the way cash flows and customer spending is drying up, a delay in CapEx is a realistic possibility and thus, 5G rollouts could easily take a backseat until there’s more clarity in the world.
If that’s the case, NOK stock could come under further pressure. If 5G progresses as previously expected though, the stock could rebound. That creates a somewhat binary situation, which admittedly is somewhat unattractive for many investors.
As it stands, analysts currently expect earnings of 27 cents per share this year. That’s despite a forecast for a 3.5% drop in revenue down to $22.3 billion. At this point, extrapolating on 2021 forecasts seems like a lost cause.
At sub-10 times earnings, NOK stock may seem attractive to investors. But that’s predicated on growth this year and next.
Remember, Nokia, is still not free cash flow positive. It has 6.1 billion euros in cash and short-term investments and current assets of $16.8 billion euros. But that only stacks up against 12 billion euros in current liabilities. There are also 3.9 billion euros in long-term debt.
At the end of the day, if 5G progresses the way investors hope, then NOK stock should be fine. If not, there are concerns about near-term growth.
Trading NOK Stock
Have a look at the long-term weekly chart above. Last week, NOK stock blew right through the 2019 low. Shares bounced off the ~$2.50 mark, closing just below $2.74. So how do we get a 100% move higher or a 50% decline lower?
It’s worth noting that, just because it’s possible doesn’t mean it will happen. However, the numbers aren’t made up for a convenient headline. A doubling from the recent low would send Nokia to roughly $5 a share.
Nokia was trading near this mark just a few quarters ago. It’s also near several long-term moving averages, particularly the 100-week and 200-week moving averages. Even a move back to $4 would be significant from these low levels.
On the downside, another 50% haircut would drop NOK down toward $1.40. It would require NOK stock to crack below last week’s low and take out the $2.50 level. If it does though, it could be on its way to the 2012 lows.
To keep it simple for shorter-term investors, below $2.50 is a concern, technically speaking. Over $3.50 shifts momentum back to the bulls.
Bottom Line on NOK Stock
If the markets weren’t in turmoil, I don’t think there would be much debate over Nokia stock — shares would be a buy. But because of the circumstances, things could either get much worse or much better.
It all depends on whether we see a temporary global economic halt and rapid snapback, or a prolonged drag on the global economy. Until we know more, investors may find more comfort buying into stocks with a stronger financial position.