Swedish telecommunications company LM Ericsson (NASDAQ:ERIC) managed to hold its own during the novel coronavirus pandemic. ERIC stock did take a hit in mid-March, but the shares quickly rebounded.
The stock is currently up 13% since the beginning of the year. Ericsson is currently considered a moderate buy on Wall Street, with a potential upside of more than 7%.
Ericsson has several factors working in its factor, including the strength of its 5G portfolio. 5G represents an enormous growth opportunity for companies, and Ericsson is in a good position to take advantage of this opportunity.
But with the company’s shares trading higher, is now the right time for new investors to jump on board? Let’s look at three pros and three cons of investing in ERIC stock.
3 Pros to Buying Ericsson Stock
Continued 5G contracts: For investors looking to capitalize on the shift to 5G, Ericsson is certainly one of the best options available. The company continues to expand its market share and strengthen its position in China.
In June, the company announced that it was awarded contracts from the three largest operators in China. This will help position the company as one of the largest 5G vendors and will help drive future contracts.
Solid first-quarter results: Ericsson reported its first-quarter earnings in April, and the results gave investors a lot to be hopeful about. Overall, the coronavirus seemed to have a limited impact on the company’s operating income.
The company’s Networks segment increased by 5% to reach $3.47 billion in sales. This growth is mostly thanks to the strength of Ericsson’s 5G portfolio. The company’s margins actually improved by more than 38% from a year earlier.
Coronavirus impact could be minimal: The coronavirus pandemic hasn’t hurt Ericsson the way it has negatively impacted other companies. And company management expects this trend to continue. For that reason, management reiterated its 2020 revenue goals.
CEO Börje Ekholm acknowledged the short-term uncertainty caused by the coronavirus but stated, “… with current visibility we have no reason to change our financial targets for 2020 and 2022.”
3 Cons to Buying Ericsson Stock
The stock isn’t a bargain just yet: The company has rebounded nicely from its March drop and is currently at a 52-week high. However, that means that ERIC stock is not going to be a bargain for new investors. And it’s uncertain whether the stock will experience another significant drop again soon.
T-Mobile and Sprint merger: The T-Mobile (NASDAQ:TMUS) and Sprint merger already caused problems for Ericsson during the fourth-quarter of 2019. The company saw a significant slowdown in its sales in North America.
Going forward, the merger could force Ericsson to significantly pick up its spending during the remainder of 2020.
Second-quarter margins could be impacted: During the first-quarter earnings call, Ekholm stated that several important contracts will be deployed during the second quarter. This could cause the company’s margins to fall as it looks to gain a strategic foothold against competitors like Nokia (NYSE:NOK).
For instance, the company recently announced that it expected to write down $109 million in product inventory in China alone.
The Bottom Line for ERIC Stock
Ericsson is a good option for investors that want to take advantage of the shift to 5G. The company continues to expand its customer base and pick up more market share.
The coronavirus has certainty caused uncertainty, but the 5G rollout will likely continue regardless. And Ericsson’s strong financial position will help the company outlast any short-term headwinds. Given the company’s strong growth outlook, now could be a good time to invest in ERIC stock.
Jamie Johnson is a personal finance freelance writer and has been writing for InvestorPlace since mid-2019. She writes for a number of other well-known financial sites, including Credit Karma, Quicken Loans, and Bankrate. As of this writing, Jamie Johnson did not hold a position in any of the aforementioned securities.