Novice Investing - Nokia Is Not Connecting People

Date: Friday 05th 2008f September 2008 05:34:36 PM

Nokia Is Not Connecting People - 04/20/2008

By: Novice Investing Staff

With its rival Motorola struggling, Nokia (NOK) should have a clear sailing. It turns out that rough sea is affecting every company in a sense. Nokia reported solid 1st quarter earning while giving out cautious guidance which results in a 13% slide on Nokia shares. In a positive note, Nokia says that the slowdown that is affecting the US is not coming to Europe. As it is mainly dominant in the Europe, it should be perceived as a somehow good news.

For the 1st quarter, revenue grew 28% to $ 20 Billion! This is mainly due to the strengthening Euro currency. In euro term, Nokia expected mobile phones shipment to shrink. Meanwhile, market share slipped 1% to 39% compared to the previous quarter. Nokia's average selling price edged down to $ 126 from $ 132 in the prior quarter. While cellular phone prices has generally decreased, stiff competition from low cost asian manufacturers such as LG and Samsung prove to be hurting Nokia in the short run.

After the earning announcement, Nokia shares fell 15% to $ 29.00. In dollar terms, Nokia is expected to earn $ 2.56 per share for fiscal year 2008. Thus, Nokia is not excessively expensive considering the dominant market share it had on the cellular phone arena. However, Nokia shares itself is not a terribly undervalued investment considering that it is trading at 10.54 times earnings on a net cash basis. While 10.54 multiple is a decent valuation, it does not represent a 50% potential appreciation from fair value. We estimated that considering the mature earning growth of Nokia, 15 times earnings is its fair value.

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Disclaimer: The sole purpose of this article is educational. This article is merely the opinion of the writer and is not in any way a buy/sell recommendation regarding Nokia Corp. (NOK) or any other securities.

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