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Nokia is an Ideal Long-Term Drive, Not a Short-Term Squeeze

Nokia (NYSE:NOK) released fiscal year 2020 fourth quarter and full year financial report on Feb. 4. Over the past 12 months, NOK stock is up about 10%. However, 2021 has so far been a rollercoaster. The stock started the year around $3.90. On Jan 27, rallied by the Reddit madness of January, Nokia shares hit a 52-week high of $9.79. Now, they are once again hovering around $3.90.

Dark clouds over Nokia (NOK) brand name on top of a building in Helsinki, Finland

Source: RistoH / Shutterstock.com

Finland-based Nokia is an important maker of telecom-class networking equipment. Its origins go back to 1865. In 2013 it sold its mobile business to Microsoft (NASDAQ:MSFT).

Since then, the company has concentrated on marketing high-end networking gear and software to telecommunications companies as well as internet service providers. It now provides hardware to wireless carriers and licenses its patents to handset and chipset vendors. In recent quarters, it has been increasing large-scale capital investments, specifically in 5G networking. Communication service providers globally are its most important customers.

Statista metrics show that the number of 5G subscriptions worldwide is expected to increase to 1.3 billion by 2023. At the same time, the share of 5G-enabled smartphone shipments is forecasted to hold a 51.4% share. According to Tim Pohlmann of IPLytics, “We will also see the increasing importance of 5G technology in other industries where smart factories, smart homes, smart meters and even smart medical devices will rely on 5G connectivity.”

Therefore, despite the current short-term volatility, Nokia stock is likely to benefit from the growth in the 5G segment. Let’s take a closer look at how Nokia’s quarterly numbers came and what investors can expect from NOK stock in the rest of the year.

Nokia’s Q4 Earnings 

According to Nokia, “5G-enabled industries have the potential to add $8 trillion to global GDP by 2030, as COVID-19 accelerates medium and long-term digital investment and value creation… Despite the economic challenges of COVID-19, a global boom in 5G investment will see 71% of companies invest in 5G over the next 5 years.”

The company’s non-IFRS Q4 net sales of 6.6 billion EUR were down 5% year-over-year (YoY). For full year 2020, reported net sales declined by 6% to 21.9 billion EUR, primarily due to network deployment and planning services in Mobile Access. 

The company reports revenue in four segments:

  • Networks (around 77% of revenue)
  • Nokia Software (around 13% of revenue)
  • Nokia Technologies (around 6% of revenue)
  • Group common and other (around 4.5% of revenue)

Numbers showed a positive operating profit, on a reported basis, both in Q4 and FY20. Its 5G gross margin increased, mainly thanks to product cost reduction. Management reported a 2021 comparable outlook operating margin of 7%-10%. Q4 became the third quarter in a row of positive free cash flow for Nokia. During the quarter, net cash balance increased by 0.6 billion euros and reached 2.5 billion euros. 

CEO Pekka Lundmark stated, “Pleasingly we already have strong technology leadership positions in many key areas of our new business groups. In Network Infrastructure we have industry-leading FP4-based products and in Cloud and Network Services we are jointly developing transformational cloud-native 5G core solutions for CSPs and Enterprise customers. In our Mobile Networks business, together with Elisa and Qualcomm, we hold the worldwide 5G speed record.”

The Bottom Line on NOK Stock

Despite this strengthened cash position, the board did not propose a dividend. Instead, the focus will be on increased investments in 5G and strategic areas. The group expects to provide an update on the dividend policy by its Capital Markets Day of Mar. 18. The company’s forward price/earnings (P/E) and price/sales (TTM) ratios are 17.30 and 0.85, respectively. 

1990’s mobile pioneer Nokia has fallen behind in smartphone technologies. But it has managed to come back as a significant 5G network solutions provider. Recent global agreements for 5G infrastructure implementations are positive improvements. Looking forward, the Finnish telecom equipment company is not likely to be a short-term winner. But a further drop toward $3.8 would improve the margin of safety for buy-and-hold investors.

Are you interested in profiting from the 5G technology but do not want to buy NOK stock? You might consider investing in an exchange-traded fund (ETF) that provides exposure to NOK shares. Examples include the Defiance 5G Next Gen Connectivity ETF (NYSEARCA:FIVG), the First Trust IndXX NextG ETF (NASDAQ:NXTG), the Defiance Quantum ETF (NYSEARCA:QTUM), the SoFi 50 ETF (NYSEARCA:SFYF), and the Goldman Sachs Innovate Equity ETF (NYSEARCA:GINN).

On the date of publication, Tezcan Gecgil did not have (either directly or indirectly) any positions in the securities mentioned in this article.

Tezcan Gecgil has worked in investment management for over two decades in the U.S. and U.K. In addition to formal higher education in the field, she has also completed all 3 levels of the Chartered Market Technician (CMT) examination. Her passion is for options trading based on technical analysis of fundamentally strong companies. She especially enjoys setting up weekly covered calls for income generation.


Article printed from InvestorPlace Media, https://investorplace.com/2021/03/nokia-is-an-ideal-long-term-drive-not-a-short-term-squeeze/.

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