Nokia Update

With Nokia’s Q1 earnings out of the way, its time to focus on where the company can go from here. Although their Q1 earnings were a bit of a disappointment, its worthwhile to note that Nokia is just beginning to delve into their product pipeline. With multiple new products released in the past month and many more slotted for May, Nokia is slowly ramping up its marketing efforts and strong sales will likely follow. From this viewpoint, it is clear why their results did not meet expectations for Q1. However the sell off post earnings announcement did present an excellent buying opportunity. It amazes me how focused the markets are on short term results and how many opportunities are available to a savvy investor who is capable of seeing and capitalizing on longer term trends. I could go on and on about why I believe Nokia is still an excellent buy at current per share prices, but I will save you the trouble and simply mention a few key points:

  • Lumia sales are are growing quickly and Nokia’s new product launches should provide the PR boost that the company requires to gain traction in the ultra competitive smart phone market
  • Short interest in Nokia has declined rapidly over the past couple of months, falling from 9% to 7% with more covering expected. This shows that hedge funds selling Nokia shares short are slowly coming to realize that the bottom may be in, and the risk/reward potential of the Nokia short trade may no longer be in their favor.
  • I have recently switched over to the Nokia Lumia 620 and have been seriously impressed with the devices functionality. Office 365 provides impressive ability to edit Word & Excel documents. It seems that Nokia and Microsoft would benefit from  beefing up their corporate sales teams and targeting large corporations whose employees require the ability to edit important Microsoft Office documents on the go.

In the end, the argument remains the same: Nokia is still currently priced for bankruptcy, meanwhile the country of Finland would never let this happen. Nokia is the largest company in Finland, and the country would likely take any steps necessary to ensure the survival and prosperity of Nokia. More importantly, the new product launches are beginning to gain traction. With multiple media events slotted for the next couple of weeks, I look forward to gaining more insight into Nokia’s product pipeline. In other words, investments in shares of Nokia are likely to appreciate over the coming months.

I have updated my cash flow model based on the Q1 results and provided a sensitivity analysis as well.

My 12 month price target for Nokia Corp is $6.50. This is equal to roughly a .66 revenue multiple which is still extremely conservative when comparing Nokia to industry competitors. Nokia shares are currently priced at $3.41, up 11 cents or 3.33% in early trading. This provides large upside potential.

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