Nokia Is an Undervalued 5G Play With Massive Upside Potential

Stocks to buy

Shares of telecommunications giant Nokia (NYSE:NOK) are finally on the move. Its stellar earnings and quarterly guidance hike has boosted its shares significantly. Moreover, it continues to win over new clients who have solidified its position in the 5G race. NOK stock gained a healthy 16% in the past three months.

a backdrop featuring the Nokia (NOK) logo with a mobile phone featuring the Nokia logo on its screen in the foreground

Source: rafapress / Shutterstock.com

NOK stock was caught in the retail trading frenzy for a short time in January, which drove its share price as high as $9.79. The stock tanked a month later to roughly $4 and was stuck at that level for a while. However, the company’s recent contract wins and remarkable earnings performance lifted the stock over its resistance levels.

It still trades cheaply based on its incredible long-term outlook. Its forward price-to-sales (P/S) estimate is at just 1.3 times expected sales. Hence, NOK stock is worth investing in at current levels and has plenty of upside potential.

A Guidance Hike Bodes Well for NOK Stock

Nokia raised its 2021 financial guidance in July after an improved performance in the second quarter. It now forecasts its revenues to fall between 21.7 billion euros and 22.7 billion euros compared to previous guidance of 20.6 billion euros to 21.8 billion euros.

Moreover, it has also upgraded its operating margin guidance from a range of 7% to 10% to a range of 10% to 12%. Depending on its performance, there is a good chance the company could raise its 2021 guidance even more in the upcoming quarters.

The foundation for the hike was laid by the company’s impressive second-quarter results. It posted revenues of 5.31 billion euros, which came in 4.3% higher on a year-over-year basis.

Additionally, constant currency net sales rose 9% from the prior-year period. The increase was driven by robust growth across all business groups, especially network infrastructure.

Furthermore, a comparable gross margin of 42.3% reflected improvements in its mobile networks division. Free cash flows are also positive for the company.

I expect Nokia to continue improving its margins in the latter half of the year by reducing its costs further. Moreover, its 5G contract wins in China should strengthen its top-line position. On top of that, it is also benefiting from tailwinds in end markets.

Nokia Is Expanding Its 5G Portfolio

Perhaps the biggest knock on Nokia was its inability to ink major 5G contracts in the past year. Its competition landed some noteworthy deals, which pushed back NOK stock’s value.

However, in the past few months, Nokia is back on track and appears to be pushing the needle in the 5G realm.

In June, it partnered with Ligado Networks to strengthen its 5G portfolio. The partnership will allow the company to provide an improved service to its clients, particularly those in the United States.

In the same month, Nokia announced the launch of the next generation AirScale 5G network.  The network allows for a lower radio access network (RAN) cost of ownership, premium speeds and a cutting-edge 5G experience.

Nokia could also capitalize on its competitor Ericsson’s (NASDAQ:ERIC) debacle in the Chinese market. Sweden disallowed Chinese vendors in the Swedish network, to which China responded by cutting ties with Ericsson. Hence, Nokia has an incredible opportunity to carve out a share in the massive Chinese market.

NOK Stock Is Finally Back on Track

After years of struggle to find direction with its business, it appears that Nokia’s comeback story is in motion. It continues to refine its 5G offerings and has been winning some major contracts of late.

NOK stock is likely to end the year with healthy growth across its top and bottom line. Despite the recent gains, NOK stock is still trading cheaply and is a highly attractive investment at this time.

On the date of publication, Muslim Farooque did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines

Muslim Farooque is a keen investor and an optimist at heart. A life-long gamer and tech enthusiast, he has a particular affinity for analyzing technology stocks. Muslim holds a bachelor’s of science degree in applied accounting from Oxford Brookes University. 

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