Nokia (NYSE:NOK) has had a rough go of it in recent years. Since 2016, Nokia stock has fallen from $7 to as low as $2.34 per share earlier this year.
While shares have recovered somewhat since the March lows, Nokia has still been on quite the losing streak. And it’s not hard to see why.
It seems that for the past two years now, everyone’s been excited about the imminent 5G rollout. Yet, each time seems that the technology is about to mainstream, something happens to stop the momentum in its tracks. However, at the risk of being fooled again, it seems Nokia is finally ready for lift-off.
Nokia Stock and the Competition
While Nokia’s stock performance continues to be underwhelming, it’s not the only industry player out there. In fact, Nokia’s closest peer, Ericcson (NASDAQ:ERIC), has reached its highest stock price since 2014.
What’s driving Ericcson’s success? Our Joel Baglole explained how Ericcson is securing numerous 5G contracts around the world. Particularly in China, Ericcson has jumped out to a key leadership position. This has been an especially impressive win for Ericcson, given that it is earning deals on Huawei’s home turf.
As you may recall, Huawei was expected to dominate 5G spending, but has now stumbled due to political pressure. While this hasn’t translated into equal success for Nokia just yet, it shows that the opportunity is there for the taking.
For months, the U.S. has been trying to get allies to join its campaign against Huawei. And now, it appears to be bearing fruit. In July, the United Kingdom delivered on this aim. That nation now will phase Huawei out of upcoming infrastructure spend within the next three years.
Previously, the U.K. had allowed Huawei to participate in its 5G network as long as it didn’t have too much market share and it wasn’t able to access vital user data. But now, the United Kingdom will be removing Huawei entirely from the mix.
This is significant on its own, as Britain is a major mobile market. Additionally, it also creates a precedent for other European allies to follow in coming months and years.
We saw that this past week. Now Sweden has joined the Huawei-free zone. Sweden’s security officials said that Chinese technology is “one of the biggest threats against Sweden.”
Admittedly, this is more of a win for Ericcson stock than Nokia stock, as Ericcson is a Swedish company. You have to imagine which supplier will get the bulk of the orders given the national interest angle.
Still, it’s a positive for Nokia as well. It needs to get as much of the overall 5G business as possible, and it should have an inside lane toward securing business in England and other European countries. With more and more countries following the U.S. and U.K. in distancing themselves from Chinese cellular technology, it sets the stage for a banner decade for Nokia and Ericcson.
NOK Stock Verdict
Let’s be clear: Nokia’s management hasn’t exactly convinced the market of much recently. Unlike Ericcson, Nokia has not had enough major 5G contract wins yet. The pandemic seems to have been more of a roadblock for Nokia in particular.
And Nokia wasn’t exactly booming prior to the novel coronavirus either. Its revenues had peaked in 2017 and had essentially flatlined since then. Coming into the virus, Nokia has shown only inconsistent profitability. That’s in contrast to Ericcson, which is at a more reasonable 25x forward P/E ratio right now.
Still, the signs are there that things may get better for Nokia. Telecom companies are starting to spend on 5G networks more heavily again after the Covid-19 induced lull. And the company is getting some new contracts, including a very cool one for installing a 4G network on the moon.
With its next earnings report on deck, look for Nokia shares to start moving higher on any signs of improved guidance and a stronger outlook heading into 2021.
On the date of publication, Ian Bezek did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Ian Bezek has written more than 1,000 articles for InvestorPlace.com and Seeking Alpha. He also worked as a Junior Analyst for Kerrisdale Capital, a $300 million New York City-based hedge fund. You can reach him on Twitter at @irbezek.