"the stock hasn't gone anywhere in last 5 years."
Well,
Now it has, but not to the direction investors would like to see:
Nokia Corporation share price in New York (USD) last 5 years.
Chart courtesy of StockCharts.com
Stock price is now below 5 year lows (in dollars) and to me it looked like a good opportunity to once again increase the position.
After Q1 I wrote:
"My key worry relates to very weak gross margin (GM) in the core business outside of patent/licensing business."
Networks unit GM was better than Q1, but still weak below 30% (and 5% lower than a year before).
Nokia Software GM improved 5% year on year and operating margin more than doubled so that's in a good track.
Nokia Technologies delivers - as always - stellar GM (97,8%) and OP (82,1%).
So, despite the very negative reaction in stock market, it's fair to say the business - especially Nokia Software unit - is going to the right direction.
I think the stock price movement was mostly due to Nokia lowering the expectation for the years 2019-2020 and beyond. Also, halting of quarterly paid dividend - even if just for Q3 and Q4 as announced - is an alarming signal.
All in all, Nokia management moved the ball one year forward stating "We expect that we will be able to progressively mitigate these issues over the course of next year.".
2020 was supposed to be a really good year, but now the payday has been moved forward and it doesn't look so sweet as it used to.
Nevertheless, the potential is there. It is not all bad.
The company just needs to get all the ducks properly in the row - especially in the Mobile Networks side of the house, which is the key to success in 5G.
Once again, I bet our money on Nokia board of directors and management making the right calls. The investors are now in need of clear positive signals.
At these levels there is already some safety of margin given e.g. some sum-of-parts analysis that I have seen (everyone can make their own estimate on the value of e.g. patent portfolio, Nokia Software and so forth). However, I would not be surprised if the fall in stock price would continue still.
Disclosure: We are long Nokia and do not consider to sell or buy in next 48 hours.
