Tech stocks were crushed in a market sell-off in 2022 due to rising interest rates, record-high inflation, and uncertain economic conditions. With the stock market still stuck in a downtrend this year, aggravated by worries over bank insolvencies, several fundamentally sound tech stocks are on sale.
One such high-quality stock is trading under $5 and could be a solid investment now. I am talking about Nokia Oyj (NOK), which has a huge addressable market. Throughout this piece, I have discussed various reasons why I am bullish on NOK.
With a $25.24 billion market cap, Finland-based networking and telecommunications equipment company NOK delivered a strong full-year 2022 performance, despite various geopolitical, economic, and supply challenges. The company’s net sales growth accelerated to 6% year-over-year in constant currency while maintaining a stable comparable operating margin of 12.5%.
For the fourth quarter of fiscal 2022, NOK’s net sales rose 11% year-over-year in constant currency. The highlight of the fourth quarter was an outstanding performance in its Network Infrastructure segment, which rose net sales by 14% year-over-year in constant currency with significant operating margin expansion.
Notably, the company saw a solid acceleration in its Optical Networks and IP Networks businesses, with net sales growing 21% and 11% in constant currency, respectively. In Cloud and Network Services, the company saw fourth-quarter net sales growth of 5% year-over-year in constant currency and an improvement in gross margin, which increased 200 bps year-on-year.
Ongoing optimization of NOK’s portfolio is bearing fruit and positions the company for continued profitable growth in 2023 and beyond. For the full-year 2023, the company expects net sales between €24.90 billion ($26.56 billion) and €26.50 billion ($28.26 billion), which implies growth between 2% and 8% year-over-year in constant currency. Also, it expects a comparable operating margin in the range of 11.5% to 14%.
Shares of NOK have plunged 2.4% over the past six months to close the last trading session at $4.52. However, Wall analysts expect the stock to hit $7.05 in the near term, indicating a potential upside of 56%.
Here’s what could shape NOK’s performance in the near term:
Positive Latest Developments
On February 28, 2023, NOK introduced the Beacon 10, its first gateway supporting Wi-Fi 6E to offer seamless, high-capacity mesh networking. Additionally, NOK upgraded its Nokia WiFi Cloud Controller to act as a User Services Platform (USP) controller. This launch might benefit the company significantly.
On February 26, NOK launched anyRAN, a revolutionary approach to assist mobile operators and enterprises in choosing purpose-built, hybrid, or Cloud RAN solutions. With this launch, the company might deepen partnerships with cloud and data center infrastructure leaders, offering end customer flexibility and choice in selecting Cloud RAN solutions.
Also, on February 20, NOK launched AVA Customer and Mobile Network Insights. This cloud-native analytics software solution simplifies the collection and analysis of 5G network data to provide communication service providers (CSPs) with stronger and more cost-effective analytical capabilities.
The launch leverages NOK’s experience and leadership in analytics that enable CSP efforts to increase operational efficiency, improve network performance, and boost customer experience.
In the same month, NOK and Kyndryl Holdings, Inc. (KD), the world’s largest IT infrastructure services provider, announced a three-year extension and expansion of their global network and edge partnership, with a focus on developing and delivering industry-leading LTE and 5G private wireless services and Industry 4.0 solutions to customers worldwide.
Robust Financials
For the fourth quarter that ended December 31, 2022, NOK’s net sales rose 16.1% year-over-year to €7.45 billion ($7.95 billion), and its gross profit grew 25.8% year-over-year to €3.19 billion ($3.40 billion). The company’s operating profit was €882 million ($940.67 million), up 19.2% year-over-year. In addition, its profit from continuing operations rose 361.9% year-over-year to €3.15 billion ($3.36 billion).
Furthermore, Profit for the period attributable to equity holders of the parent rose 363.5% from the year-ago value to €3.15 billion ($3.36 billion). Also, the company’s EPS increased 366.7% year-over-year to €0.56.
Favorable Analyst Estimates
Analysts expect NOK’s revenue to increase 9.5% year-over-year to $6.15 billion in the first quarter ending March 2023. The company’s EPS for the current quarter is expected to grow 10.9% year-over-year to $0.08. Moreover, the company has an impressive earnings surprise history as it surpassed the consensus EPS estimates in each of the trailing four quarters.
Additionally, the consensus revenue and EPS estimate of $28.09 billion and $0.50 for the next fiscal year (ending December 2024) indicate an improvement of 1.4% and 7.5% year-over-year, respectively.
High Profitability
NOK’s trailing-12-month EBIT and EBITDA margins of 10.95% and 14.82% are 135.5% and 48.2% higher than the industry averages of 4.65% and 9.87%, respectively. Likewise, the stock’s trailing-12-month net income margin of 17.06% is 531.2% higher than the 2.70% industry average.
Additionally, NOK’s trailing-12-month ROCE, ROTC, and ROTA of 21.71%, 6.80%, and 9.90% are significantly higher than the industry averages of 3.67%, 1.97%, and 1.15%, respectively.
Discounted Valuation
In terms of forward non-GAAP P/E, NOK is currently trading at 9.71x, which is 51.2 lower than the 19.89x industry average. Its 0.80x forward EV/Sales is 70.2% lower than the 2.70x industry average. Also, the stock’s forward EV/EBIT multiple of 6.45 is 60.3% lower than the 16.27 industry average.
In addition, the stock’s forward Price/Sales of 0.91x is 64.8% lower than the industry average of 2.59x. And its forward Price/Cash Flow multiple of 10.06 is 42.8% lower than the industry average of 17.59.
POWR Ratings Show Promise
NOK has an overall A rating, equating to a Strong Buy in our proprietary POWR Ratings system. The POWR Ratings are calculated considering 118 distinct factors, with each factor weighted to an optimal degree.
Our proprietary rating system also evaluates each stock based on eight distinct categories. NOK has an A grade for Value, consistent with its lower-than-industry valuation. Also, the stock has a B grade for Growth and Sentiment, in sync with its solid financial performance in the last reported quarter and favorable analyst expectations.
Within the B-rated Technology – Communication/Networking industry, NOK is ranked #4 of 49 stocks.
Click here to access the additional POWR Ratings for NOK (Stability, Quality, and Momentum).
Bottom Line
Networking and telecom infrastructure company NOK’s revenue increased at a 2.2% CAGR over the past three years, while its net income and EPS grew at CAGRs of 746.8% and 567.5%, respectively.
Despite lingering macroeconomic headwinds, the company hopes to deliver another year of growth and forecasted higher 2023 sales, given its potential to gain market share amid the 5G roll-out worldwide. Moreover, the network and telecom solutions provider continues to see strong demand in Network Infrastructure and Mobile Networks segments.
Given NOK’s robust financials, high profitability, discounted valuation, and promising growth prospects, this tech stock could be an ideal buy for under $5.
How Does Nokia Corporation (NOK) Stack up Against Its Peers?
NOK has an overall POWR Rating of A. One could also check out these other stocks within the Technology – Communication/Networking industry with an A (Strong Buy) rating: Cisco Systems, Inc. (CSCO), Extreme Networks, Inc. (EXTR), and AudioCodes Ltd. (AUDC).
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NOK shares were trading at $4.57 per share on Monday afternoon, up $0.05 (+1.11%). Year-to-date, NOK has declined -1.22%, versus a 2.80% rise in the benchmark S&P 500 index during the same period.
About the Author: Mangeet Kaur Bouns
Mangeet’s keen interest in the stock market led her to become an investment researcher and financial journalist. Using her fundamental approach to analyzing stocks, Mangeet’s looks to help retail investors understand the underlying factors before making investment decisions.
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