Nokia (NYSE:NOK) stock has been finding its footing ever since the cellphone giant sold off its mobile phone division to Microsoft (NASDAQ:MSFT) back in 2013.
Since then, it has been pushing hard to become a network solutions giant. With significant progress in its 5G endeavors and its bold reorganization plan, it appears that NOK stock is finally turning the tide in its favor.
NOK stock has been a sluggish mover in the past year or so. It had a torrid time moving past its resistance level of around $4 but has built up decent momentum in the past three months.
Its three-month returns are more than 30% with multiple catalysts in play, it has a ton of remaining upside.
Nokis is highly undervalued across most price metrics, including its forward price sales of 0.88 times, roughly 80% lower than the sector average. Hence, with an incredible growth runway ahead, the stock is trading at a massive discount.
Surprising Results
Nokia posted better-than-expected first-quarter results, where its revenues grew by 3.5% on a year-over-year basis to more than $6.1 billion. Its impressive 5G strength primarily drove the upsides in its results.
Sales of its network infrastructure business grew 28% to $1.7 billion. On top of that, the comparable gross margin was up 36.4% in last year’s quarters to 38.2%.
Furthermore, its free cash flow outlook is “clearly positive” for the full year 2023. Hence, its cash flow strength will continue to improve gradually over the next few years. At this stage, it need not win back income investors. Instead, it’s better off investing the extra cash in expanding its 5G market share.
Chief Executive Officer Pekka Lundmark recently confirmed Nokia’s first baseband for 4G and 5G. Customers have had only good things to say about the platform so far, and the company will be ramping up production in the second quarter.
The Revamped Nokia
Nokia’s future quite evidently relies on its ability to scale its 5G market share. It will have to invest millions of dollars in improving its services, and in doing so, it needs to tap into capital markets and reduce its expenditures.
The company is optimizing its business structure to generate as much savings as possible towards its 5G investments. It recently laid out its reorganization plan, which involves resetting the cost basis of various business units to optimize savings.
Additionally, it involves reducing the headcount from 90,000 to between 80,000 and 85,000 in the next couple of years. As a result, it now has four business groups, which have clear identifiable pathways towards growth.
Apart from these cost savings, it is also looking to improve its network portfolio. It will be focusing on providing robust cloud solutions-as-a-service in the near future, in line with the latest trends in the industry. Large enterprises are likely to invest sizeable sums of money in accessing the necessary network infrastructure to stay abreast with the latest IT trends.
A lot of their requirements will turn out to be complex, which should create a massive window of opportunity for companies such as Nokia with its software business. Other trends, such as working from home, will also positively impact the demand for networking solutions.
Final Word on NOK Stock
Nokia is finally gaining a foothold in the 5G race with the bold decision-making of its senior leadership. In addition, its reorganization plan will provide the necessary savings to invest in its 5G initiatives.
Moreover, it will be tapping into the capital markets to gather more funds to advance its endeavors. Therefore, with several growth catalysts, NOK stock is in an excellent position to push forward in the 5G realm.
On the date of publication, Muslim Farooque did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
