The communication and networking sector is poised for rapid growth, fueled by increasing demands for uninterrupted connectivity, rapid data transmission, and government investments. Thus, let's evaluate leading tech stocks, Nokia Oyj (NOK) and Ceragon Networks Ltd. (CRNT), to determine which one could offer superior prospects.
Since the onset of the pandemic, individuals worldwide have actively adapted their work methods and lifestyles to seamlessly incorporate online and virtual settings. With the prevalence of remote work and virtual interactions, the demand for robust communication and networking infrastructure has grown indispensable.
Increasing demand for flawless connectivity and expedited data transfer is fueling the request for advanced communication and networking technologies. Emerging technologies such as the Internet of Things and 5G networks are further propelling the market, expediting innovation, and enabling widespread connectivity.
In April, the Biden Administration launched the Public Wireless Supply Chain Innovation Fund, injecting $1.50 billion into the advancement of open and interoperable network infrastructure. This funding seeks to catalyze the rollout of open and interoperable 5G radio access networks, propelling technological progress within the United States.
Technavio projects that the industrial communication market will experience a 10.9% CAGR. Additionally, Contrive Datum Insights anticipates a 32.9% CAGR for the global networking service market, reaching $64.91 billion by 2030.
Furthermore, Gartner Inc. (IT) predicts that global spending on communication services in the current year will reach $1.45 trillion, reflecting a 1.8% increase compared to the previous year. In this context, NOK and CRNT are poised to leverage the industry's favorable conditions.
In terms of price performance, NOK has declined 14.2% in the past month, while CRNT plummeted 14.1% during the same period. Moreover, over the past three months, NOK witnessed a 12.6% decline, while CRNT plunged 25.5% over the same duration.
However, NOK has plummeted 27.1% over the past year, closing the last trading session at $3.39, whereas CRNT has declined 8.4% during the same period, closing the last trading session at $1.64.
But which Technology - Communication/Networking stock could be a better pick? Let’s find out.
Recent Financial Results
For the fiscal third quarter, NOK’s net sales decreased 20.2% year-over-year to €4.98 billion ($5.26 billion). Its operating profit declined 53.5% from the year-ago value to €241 million ($254.42 million). Also, its profit for the period and EPS decreased 68.9% and 75% from the prior year’s period to €133 million ($140.41 million) and €0.02, respectively.
For the second quarter that ended June 30, 2023, CRNT’s revenues increased 21.9% year-over-year to $86.15 million. Its non-GAAP operating income rose significantly from the year-ago value to $7.36 million.
In addition, the company’s non-GAAP net income and non-GAAP net income per share came in at $4.40 million and $0.05, compared to a net loss and loss per share of $2.47 million and $0.03 in the previous year’s period, respectively.
Past and Expected Financial Performance
Over the past three years, NOK’s revenue increased at a CAGR of 3.8%. During the same period, the company’s EBITDA and total assets grew at a CAGR of 6.5% and 1%, respectively.
Analysts expect NOK’s revenue to marginally grow year-over-year to $26.19 billion for the fiscal year ending December 2023. However, the company’s EPS for the ongoing year is estimated to decline 10.9% from the prior year to $0.41.
Over the past three years, CRNT’s revenue rose at a CAGR of 7.4%. Over the same duration, the company’s EBITDA and total assets increased at CAGRs of 203% and 2.7%, respectively.
For the fiscal year ending December 2023, CRNT’s revenue is expected to increase 15.5% year-over-year to $340.97 million. The company’s EPS for the current year is expected to come in at $0.11, up 222.2% from the previous year.
Valuation
In terms of trailing-12-month Price/Sales, CRNT is trading at 0.42x, 40.8% lower than NOK, which is trading at 0.71x. Moreover, CRNT’s trailing-12-month EV/EBITDA of 10.45x is 122.8% lower than NOK’s 4.69x. Moreover, CRNT’s trailing-12-month Price/Cash Flow of 20.28x compares with NOK’s 25.22x.
Profitability
NOK’s trailing-12-month revenue is 35 times that of what CRNT generates. Moreover, NOK is more profitable, with a trailing-12-month gross profit margin of 40.25%, compared to CRNT’s 34.24%. Additionally, NOK’s trailing-12-month EBITDA margin of 13.70% compared to CRNT’s EBITDA margin of 4.96%.
POWR Ratings
NOK has an overall rating of C, which equates to Neutral in our proprietary POWR Ratings system. Conversely, CRNT has an overall rating of B, translating to Buy. The POWR Ratings are calculated considering 118 different factors, with each factor weighted to an optimal degree.
Our proprietary rating system also evaluates each stock based on eight distinct categories. NOK has a D grade for Growth, reflecting its declining financials in the last reported quarter. In contrast, CRNT has an A grade for Growth, which is supported by its strong financial growth in the last reported quarter.
In addition, NOK has a D grade for Sentiment, reflecting its expected bottom-line decline for the current fiscal year. Whereas CRNT has an A grade for Sentiment, aligning with its positive analyst estimates.
Of the 49 stocks in the Technology - Communication/Networking industry, NOK is ranked #19, while CRNT is ranked #3.
Beyond what we’ve stated above, we have also rated both stocks for Value, Momentum, Stability, and Quality. Click here to view NOK’s ratings. Get all CRNT ratings here.
The Winner
The global landscape has transformed in response to the pandemic, with a significant shift towards virtual and online work environments. Emerging technologies such as IoT and 5G are driving innovation and fostering extensive connectivity. Moreover, the recent injection of substantial funds by the Biden Administration into open and interoperable network infrastructure signals a notable effort to accelerate technological advancement.
Given the industry's upward trajectory, tech titans NOK and CRNT are strategically poised to harness its expansion. Nevertheless, CRNT’s better financial performance, discounted valuation, and better growth record currently position it as the superior investment choice over NOK.
Our research shows that the odds of success increase when one invests in stocks with an overall rating of Strong Buy. View all the top-rated stocks in the Technology - Communication/Networking industry here.
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NOK shares were trading at $3.23 per share on Thursday afternoon, down $0.16 (-4.72%). Year-to-date, NOK has declined -29.42%, versus a 14.02% rise in the benchmark S&P 500 index during the same period.
About the Author: Aanchal Sugandh
Aanchal's passion for financial markets drives her work as an investment analyst and journalist. She earned her bachelor's degree in finance and is pursuing the CFA program. She is proficient at assessing the long-term prospects of stocks with her fundamental analysis skills. Her goal is to help investors build portfolios with sustainable returns.
Nokia (NOK) vs. Ceragon Networks (CRNT): Which Tech Stock Offers Better Investment Prospects? StockNews.com
