Nokia stock (NYSE:NOK) has underperformed this year, declining by about 10% since early January compared to the broader S&P 500 which gained about 8% over the same period. A bulk of the sell-off came over the past week or so, with the company reporting weaker-than-expected Q1 2023 results. Operating profits for the quarter declined by about 18% year-over-year to about Euro 479 million on a comparable basis, although sales rose 10% to €5.86 billion, coming in ahead of estimates. Comparable gross margin declined 300 basis points to 37.7%. The company has indicated that this was due to a weaker geographic mix. For example, customers in the United States have scaled back on spending on 5G equipment as they work through inventory that they built over the last year. At the same time, Nokia’s sales to India – which likely have lower margins – soared, with the country accounting for about 15% of total sales, up from about 5% in the year-ago quarter. Moreover, margins were also impacted by a lower contribution from Nokia Technologies’ licensing business. Nokia’s rival Ericsson has also reported similar changes to its geographic mix and margins.
That said, we still think that Nokia stock is a good value at current levels of about $4.20 per share. Nokia is still targeting sales of between Euro 24.6 billion (27.3 billion) to Euro 26.2 billion ($29 billion), marking a growth of as much as 8% versus last year, compared to Ericsson, which is likely to see no growth this year. Nokia’s valuation appears relatively reasonable, with the stock trading at about 9x consensus 2023 earnings. Nokia might also be better equipped to handle a potential slowdown in wireless infrastructure spending, given the company’s presence in the fixed-line business. For perspective, the company has been seeing more demand from areas such as optical networks, IP networks, and submarine networks. We value Nokia stock at about $5.62 per share, marginally ahead of the current market price. See our analysis on Nokia Valuation: Expensive or Cheap for more details on what’s driving our price estimate for the stock. Also, see our analysis of Nokia Revenues for more details on Nokia’s key revenue streams.
|S&P 500 Return||1%||8%||85%|
|Trefis Multi-Strategy Portfolio||2%||10%||246%|
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 Month-to-date and year-to-date as of 4/23/2023
 Cumulative total returns since the end of 2016