Nokia (NOK, Financial) experienced a significant drop in its share price today, falling by 8.47% to $4.86. The selloff was driven by disappointing first-quarter 2025 earnings results and lower-than-expected guidance.
The Finnish telecom company, Nokia, reported earnings of $176.9 million for the first quarter of 2025, missing the expected $277.2 million by 36%. Even after adjusting for a one-time charge in its mobile networks division, the earnings fell short of expectations, coupled with a 3% year-over-year decline in sales. This underperformance has been a key factor in today’s stock price decline.
Nokia also anticipates a $25 million hit to Q2 profits due to U.S. tariffs, despite its supply chain being largely located outside the U.S. However, the company's domestic operations are still subject to these tariffs, adding another layer of financial pressure.
On the bright side, Nokia announced a multiyear extension with T-Mobile to expand 5G network coverage in the U.S., which is expected to provide a stable cash flow source going forward. This strategic partnership highlights Nokia's potential to capitalize on the expanding 5G market.
Looking at the stock’s valuation, Nokia is currently trading at a price-to-earnings (PE) ratio of 19.84, with a price-to-book (PB) ratio close to a 2-year high of 1.12. Despite these metrics, Nokia’s GF Value does not suggest an attractive investment at this time, labeling the stock as modestly overvalued with a GF Value of 3.95.
The company's financial health is concerning, as indicated by an Altman Z-score of 1.78, placing it in the distress zone, which signals a possibility of bankruptcy within the next two years. Revenue per share has also been declining over the past five years.
On a positive note, the stock’s operating margin is expanding, and it scores well on the Beneish M-Score, suggesting the company is unlikely to be manipulating its financial statements. Moreover, Nokia's forward dividend yield stands at 2.87%, though this is close to a 1-year low.
Investors should remain cautious given the financial headwinds and evaluate the potential risks versus rewards, especially in light of Nokia's recent challenges and the overall market conditions.
