Times are tough financially all around and no company has gotten through without feeling the effects, but some companies are doing worse than others. Nokia (NYSE:NOK) is one company that has definitely had a difficult time staying afloat in this economy. Its stock closed at $7.73 on December 11th, down 0.26% from its value the previous day.
In the long term:
As a long term investment, Nokia's prospects are not looking good. Over the course of the past five years, they have not seen any growth and have continued to decline in the wake of losing sales and intense competition from other companies in the same market
Another criterion important for judging the security and stability of a company is the debt to equity ratio. In order to be considered a safe investment, a company's debt to equity ratio should be less than the industry average. The industry standard in Nokia's market is 80.12%, whereas Nokia's debt to equity ratio is 100.55%, so it is not doing well in this regard either.
On a relatively positive note, however, its debt is decreasing by an average of 0.70% annually so all is not yet lost. It also boasts a healthy price to sales ratio. To be sustainable, a company should have a ratio of 1.5 or less; this means its stock price is sufficiently supported by correspondingly high sales. Nokia has a price to sales ratio of 0.84, well below the maximum identified by experts.
In the short term:
There is not much to say for the future of Nokia, either. From the numbers, it does not appear to be much of a growth stock. Analysts tend to agree that if you're going to make a riskier investment in a smaller, emerging company, you should look for one that has a profit margin of at least 7%. This indicates that the company is seeing a steady rate of growth and expanding healthily into the market.
Nokia's profit margin is at a rather abysmal at -1.86%, and it has been falling for years. Barring a miracle, the company does not really seem to have much in store in terms of future success. It is also losing command in the market with its relative strength at 89% and sinking.
Another sign of a strong company is one that holds onto its stock. To be considered secure, a company should have insider holdings at 10% or greater of its outstanding stock. Insider holdings at Nokia are just 0.01% or almost none at all.
This percentage is a cause for further disturbance when you take into account the fact that three insiders unloaded a large amount of stock just three weeks ago, a move that could be seen as an attempt to cut and run. In this same time period, no insiders were buying stock in the company either.
There is some potentially good news in the headlines for Nokia. A recent deal with Mircrosoft (NASDAQ:MSFT) to sell off its mobile and smartphone division could result in profits for both companies. The deal has already helped Nokia, since that division was unprofitable and a drain on its capital.
It also has a very extensive patent portfolio, and after selling off its handset division to Microsoft, it has more freedom to make deals with vendors in foreign markets. This is a substantial advantage with a potential to increase its profits from licensing royalties by up to 40%, which translates to an extra $275 million per year.
Additionally, Nokia has a very healthy net cash position of $3.28 billion, and while it has not publicly announced clear plans for the future, having a large net cash position means it has the resources to turn itself around if those in charge can come up with a solid course of action.
From the numbers alone, Nokia does not seem to be a great choice for either a secure long term investment or a profit maximizing short term investment. It is also unclear whether there are any surefire plans in the future to turn these numbers around and get its stock back on track to see an increase again.
On the other hand, there have been some beneficial deals made and a potentially profitable refocusing of its business plan toward the more profitable divisions it owns. And with a healthy net cash position, which could potentially increase by more than double after the Microsoft deal, the company might just have what it takes to reinvigorate its stock value. And with the stock so low at the moment, it could turn out to be one of those high growth investments that really maximizes your return.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.