Nokia stock (NYSE:NOK) has underperformed this year, declining by about 20% since early January compared to the broader S&P 500 which gained about 15% over the same period. The market for radio access equipment is slowing considerably, with major carriers in the U.S. pulling back on spending after years of heavy investments, concerns about the broader macro environment, and also as they work through equipment inventory that they previously built up. Nokia’s Q2 results were weaker than anticipated, with revenue falling by 2.7% year-over-year to Euro 5.71 billion ($6.33 billion), and adjusted earnings stood at Euro 0.07 per share ($0.08). Nokia has guided for weakening demand over the second half of this year, projecting full-year net sales of between Euro 23.2 billion and Euro 24.6 billion (between $25.2 billion and $26.7 billion), down 6% at the mid-point from its previous guidance. Nokia has also cut the upper end of its operating profit margin guidance, as it sees a weaker geographic mix, with developing markets such as India accounting for an increasing mix of sales.
Notably, NOK stock had a Sharpe Ratio of 0 since early 2017, which is lower than the figure of 0.6 for the S&P 500 Index over the same period. Compare this with the Sharpe of 1.2 for the Trefis Reinforced Value portfolio. Sharpe is a measure of return per unit of risk, and high-performance portfolios can provide the best of both worlds.
So is Nokia stock worth a look at current levels of about $3.80 per share? Although growth is likely to remain elusive this year, with historical risk-adjusted returns appearing weak, there are still a few reasons to consider Nokia stock. Nokia’s valuation appears reasonable, with the stock trading at about 9x consensus 2023 earnings and 8x 2024 earnings. This compares to Ericsson which trades at over 13x forward earnings. Nokia might also be a bit better equipped to handle a potential slowdown in wireless infrastructure spending, given the company’s presence in the fixed-line space. For perspective, the company has been seeing more demand this year from areas such as optical networks, IP networks, and submarine networks. We value Nokia stock at about $5.50 per share, about 40% 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||-4%||15%||97%|
|Trefis Multi-Strategy Portfolio||-8%||18%||280%|
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 Month-to-date and year-to-date as of 8/17/2023
 Cumulative total returns since the end of 2016