Why Is Nokia Stock Up Nearly 40% Over The Last Year?

Nokia stock (NYSE: NOK) has outperformed since the beginning of 2024, increasing by about 37% (Jan. 14) since January 2024 compared to the broader S&P 500 which gained about 22% over the same period. Similarly, Nokia’s peer Ericsson stock (NASDAQ: ERIC) is also up 36% during the same period. See What’s Next For Ericsson Stock?

So, what’s happening here?

Nokia’s third-quarter results revealed an 8% year-over-year (y-o-y) decline in net sales to €4.3 billion ($4.7 billion), although this was partially offset by a 22% increase in net income to €358 million ($389 million).  On a per-share basis, earnings amounted to €0.06 ($0.07) per share. The company’s gross margin improvement and proactive cost management initiatives have helped mitigate the impact of slower sales recovery. Nokia’s sales mix has undergone a shift in recent quarters, driven by varying regional dynamics. Specifically, the company has experienced a decline in sales to the U.S. market, as customers there work through existing inventory of 5G equipment accumulated over the past year. Conversely, Nokia has witnessed a significant surge in sales to India, fueled by the accelerating pace of 5G deployments in the country. Separately, if you want upside with a smoother ride than an individual stock, consider the High Quality portfolio, which has outperformed the S&P, and clocked >91% returns since inception.

Overall NOK stock performance over the last 4-year period has been far from consistent, with annual returns being considerably more volatile than the S&P 500. Returns for the stock were 59% in 2021, -24% in 2022, -24% in 2023, and 34% in 2024. The Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, is considerably less volatile. And it has comfortably outperformed the S&P 500 over the last 4-year period. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride as evident in HQ Portfolio performance metrics.

Nokia has issued guidance for FY 2024, projecting operating profit to fall within a range of €2.3 billion to €2.9 billion ($2.5 billion to $3.2 billion). Additionally, the company anticipates full-year free cash flow to represent 30% to 60% of operating profit.

So is Nokia stock worth a look at current levels of about $4.51 per share? Although growth is likely to remain elusive this year, with historical risk-adjusted returns appearing weak, there are still a few reasons to consider Nokia stock. Nokia’s valuation appears reasonably priced, with the stock trading at about 11x consensus 2025 earnings. This compares to Ericsson which trades at about 15x forward earnings. Nokia might also be a bit better equipped to handle a potential slowdown in wireless infrastructure spending, given the company’s presence in the fixed-line space. For perspective, the company has been seeing more demand in the last year from areas such as optical networks, IP networks, and submarine networks. We value Nokia stock at $4.52 per share, in line with the current market price. See our analysis on Nokia Valuation: Expensive or Cheap for more details on what’s driving our price estimate for the stock.

[1] Returns as of 1/15/2025
[2] Cumulative total returns since the end of 2016

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