Is Nokia’s Stock Still on the Hot Seat?

Nokia (NYSE:NOK) has posted its sixth straight loss since adopting Microsoft’s (NASDAQ:MSFT) Windows Phone, struggling to pose any sort of challenge to Apple’s (NASDAQ:AAPL) iPhone or Google (NASDAQ:GOOG) Android devices despite launching new phones of its own. The erstwhile leader of the mobile industry is cutting jobs and closing production and research sites in order to stop the cash leak. But with its shares now trading at $2.82, is Nokia a BUY, a WAIT and SEE, or a STAY AWAY?

Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

C = Catalyst for the Stock’s Movement

Nokia’s stock fell 4.8 percent on October 18 after the company’s third-quarter results saw losses widening to $1.27 billion. Incredibly, sales of its Lumia smartphone line, on which the company is hitching its comeback strategy, actually fell from 4 million in the previous quarter to 2.9 million. While chief executive Stephen Elop said customers were merely waiting for the upgraded versions of the device that will use the new Windows 8 operating system, external experts are not accepting that explanation. “This is probably the first time that I have started to doubt the Nokia comeback story,” Canalys analyst Pete Cunningham told The New York Times. “These numbers were poor and worse than I expected.” While the new line of phones may offer a positive catalyst, according to Cunningham the fact that Microsoft and Nokia failed to strategize well on the timing of the release of Windows 8 has already proved to be a “kick in the teeth” for the Finnish company.

Investors do not take such damning assessments lightly.

H = High Quality Pipeline

Nokia was among the biggest success stories of the mobile revolution in the early 2000s when products such as the Nokia Communicator were considered revolutionary and industry-changing, and the company’s stock peaked. Since then, though, the company failed to keep up with competition. The Lumia 900, which Nokia launched to take on the smartphone world, just couldn’t match up to the devices from Apple or Samsung in terms of features. But the real test is yet to come. While the upcoming Lumia 920, which will be powered by Windows Phone 8 and sport a 4.5-inch display in a crisp 1280 by 768 resolution, may match up to its rival devices in technical specifications, there is another critical component. “Nokia will need to create more of an emotional connection with users of the Lumia brand,” Gartner research director Roberta Cozza told The Wall Street Journal. Both the Apple and Android groups have their own passionate fans as well as critics, a kind of appeal that can’t be built easily.

T = Technicals on the Stock Chart are Weak

As of Friday, October 19, the stock price is 0.89 percent above its 20Day Simple Moving Average; 1.78 percent below the 50 Day SMA; and 20.87 percent below the 200 Day SMA. Since the beginning of 2012, the stock price has been in a downward trend and is down 43.67 percent year-to-date and down 55.64 percent year over year. The stock is trading at the 1996 level.

E = Excellent Relative Performance to Peers is Missing

Many investors favor Return on Equity as a key metric to how well the company is operating. Nokia’s operational performance is much poorer than its peers. Nokia has an ROE of negative 32.59 percent while rival Apple comes in at a green 44.32 percent and even the struggling Research In Motion (NASDAQ:RIMM) has an ROE of negative 6.36 percent.

Operating margins are also critical for stock evaluation. Nokia is struggling with a margin of negative 9.42 percent compared to 35.62 percent for Apple and negative 5.45 percent for RIM.

Conclusion

Nokia tried to build up some momentum with the announcement of Microsoft as a software partner and a fresh charge with its revamped smartphone line. However, the waves have been too choppy for the company that lost its title as the largest mobile phone vendor earlier this year to Samsung. The stock has suffered to match the poor sales and increasing cash losses and while it may have another shot at glory with its upcoming smartphone range, things don’t look very bright yet.

“The real problem for Nokia continues to be the smartphone segment,” Canalys’ Cunningham said. “If they lose there, they are going to end up trying to compete with Chinese vendors and have a slow death.”

Nokia looks like a SELL based on the key metrics above.

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