There’s no point in pretending that the challenges of the past didn’t happen. Nokia (NYSE:NOK) stockholders have been through some tough times. And if you’re going to take a position in the shares, you’d better make peace with volatility.
In other words, please don’t load the boat on Nokia stock by any means. Even if you believe in the future of 5G network technology, there are safer ways to invest in this niche sector. That being said, Nokia shares could be on track to reclaim some short-term previous high points, with $5 and $5.50 being two very reasonable price targets.
It’s unreasonable to expect Nokia stock to revisit its $56 peak from way back in the year 2000. Even another tech bubble wouldn’t likely put it there. Still, Nokia’s willingness to push the 5G envelope should provide much-needed encouragement for the company’s shareholders. Given enough time, it’s even conceivable that the share price could double.
Nokia Stock Stumbles
What factors contributed to the considerable share-price drop in Nokia stock? First, there was the bursting of the dot-com bubble. Nokia is the poster boy of over-hyped names that got crushed when the mania gave way to disappointment.
The financial crisis of 2008 to 2009 brought the share price down again, but by late 2013, Nokia stock seemed to settle firmly at the $8 level. Then came a major misstep in 2016 when Nokia acquired French telecom firm Alcatel-Lucent.
This probably seemed like a game-changing idea at the time. Back then, Nokia boldly boasted that the company “has been bolstered by Alcatel-Lucent’s fixed, IP, optical and applications and analytics technologies, making it the only global player to offer a truly end-to-end portfolio to meet rising data-driven demands.”
Today, it’s unlikely that Nokia would dare to make such a claim. After all, Nokia has lost market share in the 5G space in recent years. And the acquisition of Alcatel-Lucent cost Nokia a whopping 15.6 billion euro, which at the time would have equated to around $17 billion.
Not only was it a costly acquisition, but there were opportunity costs in terms of the time and effort involved. Nokia did get U.S. and European regulators on board for the merger, but in the meantime the company’s grip on the then-emerging 5G market was slipping.
At Last, An Upgrade
Because of the foregoing issues and the substantial share-price decline over the years, it’s challenging to find commentators with a very bullish outlook on Nokia stock. However, J.P. Morgan’s Sandeep Deshpande did recently upgrade his rating on the shares from “neutral” to “overweight.”
With that, Deshpande increased his price target on Nokia stock from $3.95 to $5.50. That’s a significant increase and implies a sharp move from the current share price.
For Deshpande, one of the keys to Nokia’s comeback is positive free cash flow. Having reported 6 million euro in free cash flow for the first quarter of 2020, “Nokia is in a very good place to report a positive [free cash flow] for the year, which is an essential element of the company’s turnaround,” observes Deshpande.
That’s certainly an important consideration, but perhaps more important is Nokia’s leading-edge 5G technology. In the long run, that will be crucial if the company really wants to regain market share.
And if you’ve got a need for speed, then Nokia’s ready to take the pole position. The company recently recorded up to 4.7 Gbps of 5G speed in its Over-the-Air network, which represents a milestone for Nokia and for the industry.
The Takeaway on NOK Stock
Sometimes as an investor you have to be willing to forgive the mistakes of the past. Today’s Nokia stockholders should keep their eyes on the future and look to this 5G leader as an innovator that’s getting its mojo back.
As of this writing, David Moadel did not hold a position in any of the aforementioned securities.
