Buy the Dip in Nokia Stock to Prepare for the 5G Storm
Nokia stock should recover once we enter the post-pandemic world and usher in the 5G era
By Muslim Farooque Sep 23, 2020, 7:40 am EDT
The Covid-19 pandemic caused 5G delays that are weighing down shares of the telecom giant, Nokia (NYSE:NOK). Nokia stock has shed roughly 19% of its value this month.
Dark clouds over Nokia (NOK) brand name on top of a building in Helsinki, Finland
Source: RistoH / Shutterstock.com
The dip in its value, though, is more about investor impatience than about Nokia’s 5G potential. Healthy investments in R&D, effective cost-cutting measures, and expected 5G gains make Nokia stock a solid investment at this time.
Its second-quarter results suggest that the company is set to take the 5G space by storm. It now has 83 5G commercial deals along with 32 network deployments. Moreover, its shipment forecasts are estimated at 100% by 2022. Therefore, it wouldn’t be wrong to believe that Nokia stock will rebound from current lows within the next few months.
Riding the 5G Wave
Nokia seemed down and out when it sold its smartphone business to Microsoft (NASDAQ:MSFT), but the growing interest in 5G has reversed its fortunes.
At the beginning of the year, the company had 63 5G contracts, which now stands at 83 contracts. Perhaps an even more encouraging sign is that its customers include some of the world’s top telecom providers.
It will be interesting to see how 5G plays out compared to predecessors. According to reports, 5G isn’t a typical successor to 4G, as few experts that it could 10 times faster than 4G. Hence, lag times might be a thing of the past, and mobile phones and other devices would work flawlessly.
Another catalyst for Nokia is the void left by Huawei in the international markets. White House’s backlash against the company for its alleged involvement in spying led to a crackdown on its operations in various countries. Hence, it has allowed companies such as Nokia and Ericson (NASDAQ:ERIC) to cement their position in the core 5G markets.
Encouraging Q2 Results
Nokia had a better than expected second quarter. The Finnish telecom giant was able to cut down on its costs and improve its cash position, amidst a slow-down in sales.
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Sales dropped 11% as the company estimates a €300 million impact due to the coronavirus. Despite the slow-down, the company improved its net income, gross margins, and EBIT.
Profit from its continuing operations was €85 million compared to a loss of €191 million in the same period last year. Its progress in cutting costs primarily drove the upside.
However, it was partially offset by R&D expenses related to 5G. Nokia expects to pick up the pace in the third quarter with improved earnings. Additionally, it was also raised its outlook for the year. It expects non-IFRS earnings per share to grow to €0.25 from previous estimates of €0.23. moreover, it also expects margins to improve by 0.5% from 9%.
Nokia’s balance sheet is pristine with a healthy current ratio of 1.5 and a modest debt to equity ratio of 0.45. cash equivalents rose €0.2 billion in the quarter, taking the tally to €1.6 billion.
Positive free cash flow improved to €265 million, compared to a negative €1.0 billion a year ago. With such a healthy cash balance, expect the company to reinstate its dividend soon.
Final Word on Nokia Stock
There’s a lot to be hopeful about with Nokia. Though the pandemic has hampered its progress; it should be in a great position to ride the 5G wave soon.
It continues to invest heavily in its 5G-related competencies and is gaining a lot of traction with the top companies of the world. Its depressed share price provides an excellent opportunity for investors to grab the stock at a massive bargain. It would be tough to imagine the stock being at the measly $4 its at right now a few months down the line.