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After Unexpectedly Strong Q2, Nokia Has Breakthrough Potential

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While technology stocks have generally fared well in 2020, the onset of the novel coronavirus put tremendous pressure on Finnish telecom equipment company Nokia (NYSE:NOK). With that, Nokia stock suffered a severe decline earlier this year.

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We can’t just chalk it up to Covid-19, though, as there was another factor at work. Specifically, Nokia has faced strong competition in China, an important tech market, from Ericsson (NASDAQ:ERIC) and Huawei.

As a result, Nokia’s sales in China declined 41% during the first quarter. It’s fair to say, then, that Nokia didn’t win the 5G war in China. So, should Nokia’s shareholders give up hope?

Not at all. Recent data and developments suggest strong prospects for the company and its investors as Nokia forges ahead in the face of unrelenting competition.

A Closer Look at Nokia Stock

The impact of the coronavirus and 5G-niche competition in China can be clearly discerned in the price action of Nokia stock. From mid-February to mid-March, the share price tumbled from $4 and change to the 52-week low of $2.34.

Since that time, however, the Nokia stock bulls have reasserted themselves and pushed the share price back up. By early August, they even managed to touch the $5 level.

That’s an impressive recovery, but now the bulls have to prove that it’s sustainable and not just a pop-and-drop scenario. They’ll need to see a pickup in the daily trading volume, which hasn’t been strong lately.

How much farther can the bulls take Nokia stock? Keep in mind that the shares once traded at more than $50 apiece. That might seem like an unreasonable price target at the moment. Yet, anything is possible and the 5G revolution might only be getting started.

Beating the Odds

Given Nokia’s aforementioned headwinds, analysts weren’t expecting much from the company in 2020’s second quarter. It’s possible that they underestimated Nokia’s ability to execute in challenging times.

Thus, the consensus analyst estimate called for quarterly net profits of just 138 million euros. Nokia handily beat the street, however, with quarterly net profits of 311 million euros, which signified an increase of 21%.

Nokia also reportedd nondiluted earnings per share of 0.06 euros in the second quarter, an improvement over the 0.05 euros recorded during the same quarter of the previous year. That’s not too bad at all, considering the circumstances.

Not only that, but Nokia managed to maintain a positive free cash flow of 265 euros million during the second quarter. That’s a compelling improvement compared to the -1 billion euros posted during the comparable quarter of the prior year.

Clearly Positive

All in all, Nokia finished the second quarter with 1.6 billion euros worth of net cash as well as 7.5 billion euros in total cash. Understandably, then, the company raised its guidance concerning full-year 2020 free cash flow for from just “positive” to the more optimistic “clearly positive.”

Rajeev Suri, the president and CEO of Nokia, cited the company’s enhanced cash-positive position in his assessment of a terrific quarter:

“Nokia delivered a strong improvement in Q2, with better-than-expected profitability, significant improvement in cash generation, clear indications of a return to strength in mobile radio, and a year-on-year increase in earnings-per-share, despite the challenges of COVID-19.”

Amid this encouraging backdrop, Nokia was recently selected by Asia Pacific Telecom as its sole stand-alone and non-stand-alone core 5G vendor. It’s quite a coup for Nokia to be tapped for exclusive 5G services by this Taiwanese mobile operator. You just never know where Nokia will be next, or whom they’ll be serving.

The Bottom Line

Anyone who bets against Nokia stock today is taking a huge risk. The share price has been much higher in the past. And just as importantly, Nokia’s recent fiscal data indicates that the company is thriving despite its challenges.

As of this writing, David Moadel did not hold a position in any of the aforementioned securities.

The post After Unexpectedly Strong Q2, Nokia Has Breakthrough Potential appeared first on InvestorPlace.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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