by Renee O'Farrell
Long before smartphones and the rise of Apple (AAPL), Nokia (NOK) was one of the top brands in the mobile phone market. In fact, when Finnish Prime Minister Harri Holkeri made the world's first GSM (Global System for Mobile communications) call in 1991, it was using a Nokia. The company remained a major player in the mobile phone market throughout the 1990s, becoming the industry leader by 1998, with more than 40% of the market. Then, came the phones that could do everything.
They weren't quite the smartphones we know today, but they changed everything almost overnight. Nokia went from being a technology leader, and trading at $60 a share in 2000, to looking outdated in the blink of an eye. In every bid to try to keep up, the company has missed its window. Now, after poor timing and missing trends, the stock is trading at just $5 a share.
Nokia's most recent attempts to bounce back include 808 PureView, which the company describes as a digital imaging phone. It boasts a 41-megapixel camera and uses the Symbian Belle operating platform, and not a whole lot else. The outlook for the 808 PureView isn't so great, but Nokia has another phone coming out that is generating a lot of buzz - the Lumia 900. The phone is expected to hit the shelves this week, exclusively at AT&T (T) stores.
The Lumia 900 has received generally mediocre reviews, but it has some top features. The phone will run Microsoft's (MSFT) Windows 7 platform, is 4G capable, has a front facing camera and priced at just $99 - plus, it is getting a marketing push to rival the launch of the iPhone. The Lumia 900 is considered to be the best Windows phone available, and users of Microsoft's SkyDrive will enjoy the capabilities this phone has to offer, but it isn't going to prove to be much competition against rivals like Apple or Research In Motion's (RIMM) Blackberry, let alone many of its Android-based competitors.
Looking at Nokia competitor Motorola Mobility (MMI), which had been neck-and-neck with the company throughout the 1990s, the outlook is not much better. To its credit, Motorola Mobility is being acquired by Google (GOOG), and there could be great things in store for the company. While the purchase was fueled considerably by Motorola Mobility's massive patent portfolio, "Google and Motorola Mobility together will accelerate innovation and choice in mobile computing," allowing "consumers will get better phones at lower prices," per Google. All in all, it looks like Nokia will still compete against Motorola for market share in the low-cost mobile phone market.
Nokia recently traded at $5 a share with a yearly dividend of 18 cents a share (3.60%), after recently cutting its dividend in half. In 2011, its share price fell 52% but the last three months has been more encouraging; Nokia's share price increased by 6.81% in the first quarter. The company's revenues fell by almost 26% and the weakness can be seen easily in the bottom line. Its net income went from $951.85 million at the end of the fourth quarter 2010 to -$1.39 billion at the end of the fourth quarter 2011. Thanks to suffering a net loss in the past year, it price-to-earnings ratio incalculable.
Nokia's earnings per share fell from -3 cents a share for the third quarter 2011 to -37 cents for the fourth quarter 2011. That makes the third consecutive quarter the company had negative earnings per share. All in all, Nokia had a yearly earnings per share of -41 cents last year, down from 65 cents in 2010. Analysts do not expect that the first quarter 2012 will be much better, forecasting an EPS of -3 cents. Nokia also saw a shrinking return on equity, moving from 12.86% at the end of the fourth quarter 2010 to -9.80% at the end of the fourth quarter 2011.
There are a few modest pluses for Nokia. The company has a quick ratio of 1.04, showing that the company should have the ability to cover its short-term cash needs. Nokia was able to marginally increase its gross profit margin, going from 32.67% at the end of the fourth quarter 2010 to 33.32% at the end of the fourth quarter 2011. The company also maintained its sales turnover, going from 1.09 at the end of the fourth quarter 2010 to 1.07 at the end of the fourth quarter 2011. The company is priced low as well. Its price to book ratio is just 1.31 compared to its peers' 3.15, its price to sales ratio is just 0.40 versus its industry's 3.75, and its price to cash flow ratio is 13.63, compared to an average of 17.27 for its peers.
It's still not enough for me to recommend a buy. I'll call the company a hold, but only because the price is so low it is worth holding on to see if it can turn things around.
That said, Nokia could be a good speculative play.
Because Nokia is something of a "default hold" (meaning the price is so low that you are forced to hold on to try to realize some profit or at least break even), the price is low enough that an investor buying in now should be able to realize some value. Point in fact, Nokia is currently trading at $5 a share and has a one-year target estimate of $6.29 a share - that is an increase of almost 20%. Add that to its 3.60% dividend and if you bought in now, you could realize a 25% increase over the next 12 months. If you believe in Nokia, Windows phones or 41-megapixel cameras that can be used to make phone calls, you may want to take the chance.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
