If you’ve invested in Nokia (NYSE:NOK) over the last year, you’ve gotten used to that falling-off-the-cliff feeling. In 2019, between Oct. 22 and Oct. 28, Nokia stock shed almost a third of its value, a consequence of a sour third-quarter report that cut full-year outlooks for both 2019 and 2020.
As if that weren’t enough, the Finnish telecom, IT and consumer electronics company also suspended dividend payments to shareholders — not exactly the kind of move that inspires confidence.
The rough and tumble led to Nokia COO Joerg Erlemeier and Chairman Risto Siilasmaa leaving their posts soon afterward, which comforted investors at least for a bit. A slight earnings beat, reported Feb. 6, spurred further optimism.
But it didn’t last even a week.
Nokia Stock: Clawing Its Way Back
After three-plus months of clawing out of the trough, Nokia backslid a nauseating 45% between Feb. 11 and March 16, when the share price hit $2.42. During that time, Bloomberg reported that the company was in a fierce battle with Ericsson (NASDAQ:ERIC) and China’s privately owned Huawei to capitalize on phone carriers’ investments in next-generation 5G mobile networks. The pressure was enough to force Nokia into considering other options, including a merger or selling off assets, according to Bloomberg.
Yet since hitting that March bottom, Nokia has more than doubled and its current share price is in line with where it stood at the start of 2017. Despite being socked by supply disruptions due to the novel coronavirus, Nokia showed that its long and costly investment in 5G technology was finally beginning to bear fruit, albeit modest. The company eked out a small profit of 1 euro cent per share in Q1 2020, backed by good demand for its new 5G telecom equipment.
For all the whiplash, investors have reason to believe more stable times lie ahead. Next month, former Nokia executive Pekka Lundmark will depart the energy group Fortum to become the new president and CEO. In announcing the move, Nokia touted Lundmark’s accomplishments at Fortum, where “he consistently delivered robust total shareholder returns, successfully renewed the company’s strategy, and positioned it to be a strong player in the transforming global energy sector.”
What’s more, 2021 is just a quarter or so away and with it the promise of Nokia returning to the solid profitability hinted at in that dreadful Q3 2019 report. Over and over again, it has trumpeted its readiness for the 5G era. But does that mean investors should phone this one in?
Will Nokia Finally Make Good on Its Promise?
Taking the long view, Nokia hasn’t exactly set the world of Wall Street on fire. Investors were abuzz when the company acquired its smaller French rival Alcatel-Lucent for $16.6 billion in April 2015. At the time, it made Nokia the second largest mobile equipment manufacturer in the world with an estimated market share of 35%, Forbes reported.
If only Nokia’s stock had risen by a similar percentage — and in fact, it has since dropped 35%.
So with its huge investments in buying a competitor and staking out 5G turf, you could either make the case that Nokia is finally set to make good on its spend, or it will gyrate up and down in pretty much the same way it has for the last five years.
While the last few months have shown signs of a robust, for-real turnaround — this despite those Covid-19 supply chain issues — it’s hardly time to put the champagne on ice, let alone pop the cork. While Lundmark’s return to Nokia makes for warm-and-fuzzy headlines, he’s been away since 2000. In essence he’ll inherit a company nothing like the one he left, though he may well wish he did. Right around the time Lundmark was cleaning out his desk, the company hit its all-time high of $58.69.
What’s more, there’s no precedent to cite when it comes to the profitability of 5G. Yes, the potential is huge. But Nokia will have to pull off some fancy footwork to establish global dominance over Huawei, even as 5G itself must live up to its considerable hype. We’ve been hearing about 5G for several years now, but the breathless headlines that heralded its arrival have since waned (in much the same way fever over artificial intelligence has cooled).
At least on the analyst side, there’s something of a consensus in Nokia’s favor. The Wall Street Journal reports that currently, more than half (18 of 32) consider Nokia a buy. That’s down from 20 analysts three months ago, but still significant. That noted, it’s hard to ignore those 11 that sit squarely on the fence and call Nokia a hold.
Bottom Line on Nokia
In the end that’s where we fall, since Nokia still has much to prove and a troubling history of share price gyration and inconsistency. Hold then at least until October, when Lundmark will reach his first month as CEO by delivering Nokia’s Q3 earnings report. If it’s a miss, the Street will likely give him a pass; everything will be based on the months before his arrival.
But how he delivers the news, good or bad, and how he casts a vision for Nokia’s future, short and long term, will have significant repercussions. Even a symbolic announcement that hints at a returning dividend could cement loyalty in the investor ranks.
Regardless, it may be the best chance the Finnish telecom will have to mount a convincing comeback — or at least offer a convincing comeback strategy — for years to come.
Lou Carlozo is Editor In Chief of Qwoted, a sourcing platform for journalists. As a financial writer, his work has appeared in the Chicago Tribune (where he spent 16 years on staff), Aol, Reuters, Money Under 30, GOBankingRates and U.S. News & World Report (where he covered investment for six years. He is also creator and host of the “Bankadelic” podcast, and a longtime music producer and studio musician.