Can Nokia Stock Reach New Heights?

With shares of Nokia (NYSE:NOK) trading around $4, is Nokia an OUTPERFORM, WAIT AND SEE or STAY AWAY? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

T = Trends for a Stock’s Movement

Nokia operates as a mobile communications company worldwide. It designs and develops mobile products and services; provides digital map information and related location-based content and services for mobile navigation devices, automotive navigation systems, and Internet-based mapping applications; and provides mobile and fixed network infrastructure, communications and networks service platforms, as well as professional services and business solutions to operators and service providers. Nokia operates in three segments: Devices & Services, HERE, and Nokia Siemens Networks.

Nokia has announced it will acquire the remaining stake it doesn’t already own in the Nokia Siemens network. Nokia is buying Siemens’s (NYSE:SI) 50 percent of the network for a lower-than-expected 1.7 billion euros. The mobile movement is very hot at the moment and if executed correctly, Nokia may be able to see significant profits. Should Nokia provide more relevant mobile products, look for it to become a major player in the space once again.

T = Technicals on the Stock Chart are Strong

Nokia stock has struggled to see rising prices in the last few years. The stock is currently seeing a nice bounce after experiencing a fair amount of selling. Analyzing the price trend and its strength can be done using key simple moving averages. What are the key moving averages? The 50-day (pink), 100-day (blue), and 200-day (yellow) simple moving averages. As seen in the daily price chart below, Nokia is trading above its rising key averages which signal neutral to bullish price action in the near-term.

NOK

(Source: Thinkorswim)

Taking a look at the implied volatility (red) and implied volatility skew levels of Nokia options may help determine if investors are bullish, neutral, or bearish.

Implied Volatility (IV)

30-Day IV Percentile

90-Day IV Percentile

Nokia Options

45.17%

50%

48%

What does this mean? This means that investors or traders are buying a significant amount of call and put options contracts as compared to the last 30 and 90 trading days.

Put IV Skew

Call IV Skew

September Options

Flat

Average

October Options

Flat

Average

As of today, there is an average demand from call buyers or sellers and low demand by put buyers or high demand by put sellers, all neutral to bullish over the next two months. To summarize, investors are buying a significant amount of call and put option contracts and are leaning neutral to bullish over the next two months.

On the next page, let’s take a look at the earnings and revenue growth rates and the conclusion.

E = Earnings Are Mixed Quarter-Over-Quarter

Rising stock prices are often strongly correlated with rising earnings and revenue growth rates. Also, the last four quarterly earnings announcement reactions help gauge investor sentiment on Nokia’s stock. What do the last four quarterly earnings and revenue growth (Y-O-Y) figures for Nokia look like and more importantly, how did the markets like these numbers?

2013 Q2

2013 Q1

2012 Q4

2012 Q3

Earnings Growth (Y-O-Y)

100.00%

13.64%

-87.10%

-778.57%

Revenue Growth (Y-O-Y)

-40.38%

-23.40%

-20.68%

-23.13%

Earnings Reaction

-0.24%

-12.93%

-8.92%

-5.00%

Nokia has seen mixed earnings and decreasing revenue figures over the last four quarters. From these numbers, the markets have not been happy with Nokia’s recent earnings announcements.

P = Weak Relative Performance Versus Peers and Sector

How has Nokia stock done relative to its peers, Apple (NASDAQ:AAPL), BlackBerry (NASDAQ:BBRY), Ericsson (NASDAQ:ERIC), and sector?

Nokia

Apple

BlackBerry

Ericsson

Sector

Year-to-Date Return

2.91%

-5.86%

-11.60%

20.40%

8.31%

Nokia has been a poor relative performer, year-to-date.

Conclusion

Nokia develops and delivers communications products to consumers and companies worldwide. With the recent acquisition of the remaining stake of the Nokia Siemens Network, the company is poised to continue to grow. The stock has not done very well in recent years, but is currently witnessing a strong bounce. Over the last four quarters, earnings have been mixed while revenue figures have been decreasing which has not pleased investors in the company. Relative to its peers and sector, Nokia has been a weak year-to-date performer. WAIT AND SEE what Nokia does this coming quarter.

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