Nokia Stock Continues to Shine in The Hotly Contested 5G Race

Nokia (NYSE:NOK) stock has rallied back from its lows in the latter half of the year. There’s also plenty of upside remaining with NOK stock as it’s still in the early days of 5G rollout. Analysts point to at least a 30% upside from current levels and price estimates should continue to improve with the advancements in 5G. Smart investors shouldn’t sleep on it.

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

Source: RistoH / Shutterstock.com

NOK stock had an incredibly rough time breaking past the $4 resistance level for the better part of 2020. However, the situation is now changing as its management’s 5G plans are coming to fruition. Nokia has positioned itself incredibly well in the 5G race and is poised to take a substantial market share away from its peers in the future. The company is also still a long time away from witnessing peak demand in 5G. Moreover, the rollout peak in the sector will be much more sustained than previous generations.

Third Quarter Update

Nokia recently posted its third-quarter results, which were a step in the right direction for the company. It reported robust sales growth in its cloud and network infrastructure services, resulting in a 2% growth in overall sales. Moreover, gross margins are now 40.7%, which is an increase compared to the same period last year. Similarly, operating margins improved to 11.7% from 9.2% from the prior-year period. This is impressive considering a substantial increase in research and development (R&D) spending and selling, general, and administrative (SG&A) costs.  Moreover, the return on invested capital came in at a solid 20.2% which showed the management’s ability to invest capital effectively.

Management has raised concerns over supply chain issues. CEO Pekka Lundmark states that supply chain issues are likely to worsen before they get better. Additionally, if there weren’t any supply chain hiccups, results across multiple divisions would’ve been much better.

Furthermore, Nokia has a total debt burden of 5.08 billion euros, which can be easily paid off with the company’s colossal cash reserves of 9.38 billion euros. With such a healthy balance sheet, the company management can be aggressive with its capital expenditures and R&D spending since meeting its expectations of regaining market share across various segments.

Future Outlook

Nokia’s management plans to ramp up 5G expenditures in improving its product offering, boosting its sales in the coming years. Donald Trump’s boycott of Huawei has positively impacted Nokia as several Western countries followed suit in the United State’s anti-Huawei stance. Most recently, Nokia completed its deployment with Taiwan Mobile Co.

Nokia continues to win contracts due to the vacuum created by Huawei. It has extended its contracts in Eastern Europe as Huawei continues to be sidelined amidst national security concerns.  Moreover, Nokia has the firepower to continue spending aggressively, expanding its 5G patent portfolio.

Additionally, 5G fixed wireless accesses are likely to grow by close to 100% yearly into 2023.  Companies depending on telecommunications equipment will need to upgrade to new next-generation equipment to stay competitive in the 5G realm. Hence, with all these developments, it appears that Nokia will accomplish its 2023 goal of achieving 15%-20% return on invested capital.

Bottom Line On NOK Stock

NOK stock is finally starting to build momentum after moving sluggishly in the past year or so. Nokia’s 5G investments are beginning to pay off and it will continue to invest its resources to maximize its revenues from the 5G rollout cycle. The Huawei debacle has opened up new doors for the company and further allowed it to cement its positioning in the 5G race. Therefore, NOK stock remains an excellent long-term 5G play with a robust growth runway.

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

Muslim Farooque is a keen investor and an optimist at heart. A life-long gamer and tech enthusiast, he has a particular affinity for analyzing technology stocks. Muslim holds a bachelor’s of science degree in applied accounting from Oxford Brookes University.  


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