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This article will determine whether an investment in the Nokia Corporation (NYSE:NOK) can provide a positive return. To this end, this report includes a comprehensive Pro and Con analysis for Nokia, as well as both financial and non-financial evaluations. Such investigations have been conducted using investor ratios, and reviews of company management, style, and competitor policies.

Summary

The Finland-based cell phone maker is currently facing considerable obstacles. Most notably, Nokia's revenues are falling. Meanwhile, interest expense is increasing, indicating that the company's debt is on the rise. Competitors have also made it difficult for Nokia to retain its market share.

Yet, the company is currently introducing a new smartphone series with the potential to improve Nokia's present condition. Analysts all agree that this new line must be successful if Nokia wants to regain its prior profitability. Nokia's smartphone sales have not been as impressive as expected for quite some time. While the last quarter of 2012 showed some improvement due to the performance of the Nokia-Siemens Network, the Smartphone Division still reported negative performance.

The most crucial question at present is whether the success of last quarter can be expected to continue. For the moment, despite considerable effort on the part of management, Nokia still poses a risky investment.

Nokia Corporation - New Investor's View

The multinational Nokia Corporation offers a wide variety of services related to communications and information technologies.

Its principal products are mobile telephones and portable IT devices. In conjunction with Siemens (SI), Nokia manages a venture through which it provides telecommunications network equipment and services. The company also controls Navteq, a wholly-owned subsidiary that provides Internet and map services

Navteq is a wholly owned subsidiary of Nokia Corporation through which it provides Internet and map services. Nokia currently operates in more than 120 countries, and sells in more than 150 countries, with total revenues of around $30 billion.

Stock Exchanges where Nokia is listed as a Public Limited-Liability Company:

  • The Helsinki Stock Exchange
  • The New York Stock Exchange.

According to the Fortune Global 500 and measured according to 2011 revenue statistics, Nokia is the world's 143rd-largest company.

Overview of Nokia's Value

With a current trading value of around $3.5 a share, Nokia is generally considered by many experts to be considerably undervalued. This may most likely be contributed to a number of factors, including the considerable rise in profits during Q4 2012 due to the success of the Nokia-Siemens Network. However, despite such recent increases, Nokia's Smartphone and Symbian phone sales remain low. This shows that, unfortunately, the company's core business areas are still producing losses.

Nokia's device and service units need to be successful in order to facilitate any kind of resurgence. This will happen only if Nokia's new Windows phones are successful. However, the current consumer market has not yet taken to Microsoft's Windows Mobile Operating System. Until they do, these phones are unlikely to be successful in such a fiercely competitive marketplace. Furthermore, the Nokia Corporation has yet to issue dividends to shareholders this year. All these conditions suggest that this company will face considerable difficulties over the coming year.

Another measure to look at is the PEG ratio of a company to determine whether a stock is overvalued or not. The PEG ratio can also be a useful tool in determining the appropriate value of a company. As of the time of writing, Nokia's PEG Ratio stands at 2.7. In order to be considered fairly valued, a company's PEG Ratio should be equal to one. This company's excessive PEG Ratio indicates that the company is overvalued.

Other important factors to consider:

Price/Earnings ratio of Nokia is negative. Surely, you do not want to invest in a stock with negative earnings.

Dividend Yield is the relationship between the dividend paid and the market value per share. Unfortunately, Nokia cut its dividends last year. So, I doubt whether Nokia will ever be able to pay a dividend again.

The Price/Book Ratio indicates the relationship between a company's book price and its actual market price. Nokia's current price/book ratio is only 1.2, considerably below the industry average of 2.2. Thus, the company has substantial assets and could therefore be a takeover target.

The Price/Sale Ratio compares share prices with the company sales figures for the past 12 months. Ideally, the lower the P/S ratio, the more attractive the company is for investment. Nokia's PS ratio is 0.3, while showing its debt-to-equity ratio is 0.69. So the company might actually be suitable for investment. However, this must be considered in conjunction with the company's inflated PEG ratio, which indicates overvaluation.

Moreover, a good price/sale ratio is insufficient proof of a company's suitability for investment. Nokia's return-on-equity and return-on-invested-capital figures are both showing negative percentages, which maintain an overall negative picture of company health.

Basic Ratios

Ratio

Nokia 2012

Industry Average

Price Earnings Ratio

-3.3

29.5

Dividend Yield %

-

1.6

Price / Book

1.3

2.2

Price/Sale

0.3

1.7

PEG Ratio

2.7

-

Debt/Equity Ratio

0.69

-

Gross Margin%

27.8

-

Operating Margin%

-7.63

-

EBT Margin

-8.76

-

Asset Turnover

0.91

-

Financial Leverage

3.72

-

Return on Equity%

-31.69

-

Return on Invested Capital %

-21.83

-

(Morningstar.com)

What's Next?

Obviously, the biggest competition for Nokia products comes from Apple (NASDAQ:AAPL) and Google-Android (NASDAQ:GOOG) handsets. These two major mobile phone platforms have proven very damaging to Nokia. A massive market share has already been lost, with Nokia's share price falling from $40 in late months of 2007 to as low as $2 in mid-2012.

To appeal to the growing consumer demand for smartphones, Nokia introduced the Microsoft (NASDAQ:MSFT) Windows-based Lumia series. Unfortunately, this product was unable to garner the same attention as the Apple iOS and Google Android-based phones.

However, the entirely original interface features on the Nokia Windows phone has helped the company to avoid much of the legal drama experienced by some of its competitors, as exemplified by the ongoing Apple/Samsung (OTC:SSNLF) dispute. It is now clear that Nokia's future will be determined by the success of its smartphones and its collaboration with Microsoft. Unfortunately, the current smartphone line offered by Nokia is not sufficient enough to compete with competitors in the market. Microsoft's alignment with HTC to offer Windows-based HTC phones was another blow to Nokia's business prospects. Ultimately, if Nokia hopes to rebound, it will have to considerably improve its own software or obtain exclusive access to Windows Mobile.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Business relationship disclosure: EfsInvestment is a team of analysts. This article was written by Cagdas Ozcan, one of our equity researchers. We did not receive compensation for this article (other than from Seeking Alpha), and we have no business relationship with any company whose stock is mentioned in this article.

Source: Nokia: Not Enough Luck With The Lumia