Second acts are seldom granted on Wall Street, but Nokia Corp (ADR) (NYSE:NOK) believes its Nokia 3310 handset, which some industry pundits regard as the greatest phone ever made, can answer investors’ calls for higher revenue and profits and ultimately grow Nokia stock.
Reports suggests that Nokia’s design partner, HDM Global will release the Nokia 3310 at the Mobile World Congress conference in Barcelona, Spain, later this month.
But is bringing back a clunky device after a 13-year absence enough to convince investors to dial into NOK stock? The stranglehold Apple Inc. (NASDAQ:AAPL) and Samsung Electronics (OTCMKTS:SSNLF) have had on the smartphone market, which has rendered both BlackBerry Ltd (NASDAQ:BBRY) and Microsoft Corporation (NASDAQ:MSFT) — a Nokia partner — irrelevant, is poised to get tighter.
It wasn’t that long ago that the company hung up on its Lumia 920 that was powered by Microsoft’s Windows Phone 8. What does Nokia now hope to gain? Investors want to know why does NOK stock now deserve a second look?
Multiple reports suggests the phone, which will be much smaller than the original, may cost in the range of $60 to $70 per device. Immediately this means NOK has no interest is battling Apple and Samsung, but may have its sights set on low-end Android devices from the likes of Huawei. But is battling for scraps on the low-end worth Nokia’s effort?
According to mobile analytics and advertising firm Flurry, owned by Yahoo! Inc. (NASDAQ:YHOO), Apple accounted for some 44% of smartphone activations during the holiday, while Samsung devices took second place with a 20% share.
And with the recent launch of the Pixel XL phone by Alphabet Inc’s (NASDAQ:GOOG, NASDAQ:GOOGL) Google, Nokia’s degree of success has gotten even harder. And so say nothing about the Fire Phone from Amazon.com, Inc. (NASDAQ:AMZN), which Amazon is practically giving away.
Nokia has spent the last couple of years rebuilding and rebranding its business to capitalize on growth opportunities in networking — particularly in data traffic management. To its credit, over the last couple of years, the company has cleaned up its books with extensive cost-cutting measures and is now profitable and is no longer strapped for cash. But to the extent bringing back the 3310 makes NOK stock attractive? I don’t see it.
With Nokia stock climbing some 21% over the last three months, these shares are no longer a bargain. Based on Wednesday’s closing price of $5 NOK stock is priced at 21 times fiscal 2017 earnings-per-share estimates of 24 cents. Not only is that two points above the S&P 500 index, it also implies flat earnings growth year-over-year.
And while Nokia stock does pay a 5.7% annual dividend yield, the opportunity cost of being stuck in these shares instead of, say, AAPL, isn’t worth the risk for a stock that hasn’t seen $10 in six years. In short, while the 3310 handset might be popular, it’s no lifeline.
As of this writing, Richard Saintvilus did not hold a position in any of the aforementioned securities.
This article was written by Richard Saintvilus for InvestorPlace on Feb 16, 2017.