While Nokia (NYSE:NOK) finished the summer with lots to look forward to — including the entrance of new CEO Pekka Lundmark on Aug. 1, a month earlier than expected — the last 30 days have been a yawner for the multinational Finnish telecom. On Sept. 10, Nokia stock traded for $4.10 per share. And on Oct. 9? $4.02 per share. Quick, what’s Finnish for “Stop the presses and halt all trading!”? (Never fear, InvestorPlace is here. It’s: “Pysäytä puristimet ja pysäytä kaikki kaupat!”)
Meanwhile, you could say Lundmark’s honeymoon with investors ended pretty freaking fast. In anticipation of his early start, Nokia bounded 16% in July. But since that rose-colored peak of $5.06 per share on Aug. 3, shares have slid 20%.
Clearly the time for warm-and-fuzzy headlines about a former Nokia star returning to where he began his career have lost whatever luster they had. Besides, Lundmark last worked for the telecom in 2000, which predated the first smartphone by seven years. It might as well be a different company, because in essence it is.
So now comes the time for Lundmark to prove himself to Nokia shareholders, based on the reputation he built at the Finnish energy company Fortum (OTCMKTS:FOJCY). Nokia executives bragged that while there, Lundmark “consistently delivered robust total shareholder returns … and positioned it to be a strong player in the transforming global energy sector.”
Yes, but … the same CNN article that reported this news ran under the headline “Nokia names new CEO after missing 5G opportunity.” Yet things have changed much since March, with Nokia once again in the 5G race if it can lace up its track shoes. Here’s how things are shaping up thus far.
Nokia Stock, From Stumbling to Stumbling Back
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 stock had risen by a similar percentage — and in fact, it has since dropped 34%. Worse yet, it flopped around as China’s privately owned Huawei Technologies took the undisputed lead in emerging 5G mobile technology.
Then came one of those rare second chances that materializes when a frontrunner gets shot down. Amid accusations of intended espionage, Huawei was dealt what a geotechnology expert called “a lethal blow” when the U.S. Department of Commerce announced in August that it would cut off “Huawei’s access to vital, advanced computer chips essential to its cell phone technology.”
Despised rival out. New CEO in. Hey, this is looking pretty good for Nokia stock. The question in this case is whether good looks can deceive.
5G Survival and One More Rival
If share prices of Nokia stock haven’t quite caught up to the news, the House of Lundmark notched a nice victory on Oct. 9 when two Belgian companies picked it to replace Huawei in building their 5G networks. Multiplied over the entirety of Europe, and perhaps Asia, such deals could build the momentum Lundmark so much wants to share with shareholders.
But elsewhere in Scandinavia, Nokia has a fierce competitor in the Swedish telecom Ericsson (NASDAQ:ERIC), so it’s not as though they’ve backed into sure victory yet. A score in Belgium may be good news, but it doesn’t translate into nimble movement to seize a spot as a dominant 5G force. Having stumbled before, Nokia has a chance to erase such memories, remake its 5G reputation and gain a valuable vote of confidence for Lundmark.
It’s all doable but … signs so far aren’t the best. Over the last year, Ericsson has surged 32%. And Nokia stock? It’s off by more than 18%. In terms of the 5G market – arguably the most important telecom development of the century — such opposite stock trajectories don’t exactly spell good news for Nokia.
Let’s Put the ‘OK’ in NOK
When a stock share sells for the same price as a loaf of organic wheat bread, I see few issues with buying based on the promise of its place in a soon-to-explode market segment. Nokia is already there: It now it has to finish the job of stepping up. And unlike so many hype-tech companies, Nokia turns a profit, with a price-to-earnings ratio of 31.
I’m not convinced Lundmark will light a fire under his new-old company. By way of wild hyperbole, it’s like asking Alexander Graham Bell to consult on mobile, so consider Lundberg as starting from scratch. Yes, he delivered profits and turnaround with his last company, but energy and telecom might as well be apples and oranges.
Lost in all the political and pandemic headlines these days is a story about 5G changing the world with its ultra-fast speeds like nothing consumers or businesses have seen before. Let’s leave it at this: Nokia has not been a golden company of recent, but it stands at the door of a golden opportunity.
On the date of publication, Lou Carlozo did not have (either directly or indirectly) any positions in the securities mentioned in this article.
