Will An Acquisition Help Nokia?

With shares of Nokia (NYSE:NOK) trading around $3, is NOK 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, 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. Shares in both companies rose after the announcement. 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 Mixed

Nokia stock seen a reasonable amount of selling pressure in recent years. The stock is now rebounding higher on higher highs and higher lows. 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

66.11%

70%

68%

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

July Options

Flat

Average

August 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 Decreasing 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 Q1

2012 Q4

2012 Q3

2012 Q2

Earnings Growth (Y-O-Y)

13.64%

-87.10%

-778.57%

-537.50%

Revenue Growth (Y-O-Y)

-23.40%

-20.68%

-23.13%

-29.56%

Earnings Reaction

-12.93%

-8.92%

-5.00%

6.49%

Nokia has seen mostly decreasing earnings and revenue figures over the last four quarters. From these numbers, the markets have been disappointed with Nokia’s recent earnings announcements.

P = Average 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

-2.15%

-23.24%

-12.97%

13.42%

2.64%

Nokia has been an average performer, year-to-date.

Conclusion

Nokia provides valuable 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 struggled in recent years but is now seeing a powerful rebound. Over the last four quarters, investors in the company have been disappointed as earnings and revenue figures have been mostly decreasing. Relative to its weak peers and sector, Nokia has been an average year-to-date performer. WAIT AND SEE what Nokia does this coming quarter.

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