Can Nokia Claw Its Way Back?

With shares of Nokia (NYSE:NOK) trading around $7, 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 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.

Shares of smartphone maker Nokia are down nearly 3% in morning trading Wednesday after the company was hit by another setback in its ongoing tax battle with India’s government. The Financial Times reports a court ruling last week imposed extra conditions before Nokia would be cleared to transfer its assets in India to Microsoft (NASDAQ:MSFT) as part of its $7.2 billion acquisition deal. Nokia has appealed the ruling to India’s highest court. At issue is a manufacturing factory based in India that employs 30,000 people, says the report. ”Under the new terms of the court we will not now be in a position to transfer our assets, and that would put the continuity of our operations and their 30,000 employees in serious jeopardy,” said Nokia in a statement to the Financial Times.

T = Technicals on the Stock Chart Are Mixed

Nokia stock has struggled to make significant progress over the last couple of months. The stock is currently pulling back and may need time to consolidate before heading higher. 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 between its rising key averages which signal neutral 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

48.79%

43%

40%

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

March Options

Average

Average

April Options

Average

Average

As of today, there is an average demand from call and put buyers or sellers, all neutral over the next two months. To summarize, investors are buying a significant amount of call and put option contracts and are leaning neutral 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 Q4

2013 Q3

2013 Q2

2013 Q1

Earnings Growth (Y-O-Y)

-16.67%

-91.96%

100.00%

13.64%

Revenue Growth (Y-O-Y)

-21.23%

-18.31%

-40.38%

-23.40%

Earnings Reaction

-8.70%

10.37%

-0.24%

-12.93%

Nokia has seen mixed earnings and decreasing revenue figures over the last four quarters. From these numbers, the markets have had conflicting feelings about 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

-11.70%

-4.29%

31.99%

2.12%

5.53%

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

Conclusion

Nokia develops and delivers communications products to consumers and companies worldwide. The company’s shares are down nearly 3 percent in morning trading Wednesday after the company was hit by another setback in its ongoing tax battle with India’s government. The stock has struggled to make significant progress over the last couple of months and is currently pulling back. Over the last four quarters, earnings have been mixed while revenues have been decreasing which has produced conflicting feelings among investors. Relative to its peers and sector, Nokia has been a weak year-to-date performer. WAIT AND SEE what Nokia does this quarter.

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