Stock Analysis & Ideas

Within 5G Space, Nokia is in it to Win it

With its five-year returns in the negative, Nokia Corporation (NOK) stock has been a downer for investors. After attempting to enter the smartphone industry, its underlying business was moving in a new direction. However, under the visionary leadership of its CEO, Pekka Lundmark, it has established itself as a serious contender in the 5G realm with massive upside potential.

Shares of the Finnish telecommunications equipment provider ebbed and flowed within a tight range for the better part of 2021. However, with some positive results and developments in the past few quarters, NOK stock is picking up the pace. The stock has been up over 20% in the past year, which is a good start considering its sluggish growth over the years.

5G is at the forefront of its turnaround. It has struck deals with multiple entities in the past year, gaining a healthy market share in the sector. Moreover, one of its key competitors, Ericsson (ERIC), recently stated that 60% of the world population could be under 5G coverage within the next four years. Therefore, Nokia and its peers are looking at a massive opportunity ahead, solidifying their growth outlook.

Expansion into Private 5G

Nokia is a leader in private wireless support with over 400 4G and 5G customers. Though this segment only represents a relatively small portion of the company’s revenues, it has the potential to boost growth for the corporation in the coming years. Research suggests that enterprise 5G expenditures will dramatically increase over the next few years.

Its recent partnership with IBM (IBM) managed-services spin-off Kyndryl could prove to be a game changer. Kyndryl is a software and cloud computing specialist with a massive workforce of 90,000 individuals. It offers a wide variety of services, including design, consultancy, cloud infrastructure hosting, and others. It plans to provide a unified network and edge services for data center and cloud connectivity, through an alliance with Nokia. Kyndryl plans to offer end-to-end solutions for its customer base, including sourcing, planning, and implementation services.

Wall Street’s Take

Turning to Wall Street, NOK stock maintains a Strong Buy consensus rating. Out of six total analyst ratings, five Buys and one Hold ratings were assigned over the past three months. The average NOK price target is $7.17, implying 34.52% upside potential. Analyst price targets range from a low of $6.50 per share to a high of $7.50 per share.

What To Do With NOK Stock

Nokia’s financial foundations are remarkably lean, and unlikely to give the company much trouble. It has the flexibility of issuing more debt over the coming years if it needs to. Moreover, its management has the option to be more aggressive with its capital expenditures with its robust cash position. Nokia has set a target of a 15-20% return on invested capital by 2023.

Supply chain challenges will likely remain a problem in 2022, which could result in a drag on shares. However, due to its strong fundamentals, NOK remains a highly attractive 5G play that will continue to gain market share in the space. Moreover, the rewards of its investments will continue to bear fruit for several years to come.

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