Cutting-edge communication technologies and the growing need for seamless connectivity could keep the communication technology industry afloat. Given the industrial tailwinds, let’s evaluate the prospects of two communication technology companies.
Headquartered in Espoo, Finland, Nokia Oyj (NOK) provides mobile, fixed, and cloud network solutions worldwide, whereas NETGEAR, Inc. (NTGR) is engaged in the design, development, and marketing of networking and internet-connected products for consumers, businesses, and service providers.
Thanks to stand-out technologies, the communication technology sector has tremendously evolved and made communication seamless. Even though the sector is not completely insulated from the current macroeconomic challenges, it is anticipated to thrive in the long run.
Moreover, on the backs of rapidly rising consumer demand for features such as low power consumption, high throughput and coverage, high speed, and high-security technologies, the communication technology industry could witness significant growth in the foreseeable future.
The global information and communications technology market is expected to grow $3 trillion by 2030, at a CAGR of 9.1% from 2022 to 2030.
Over the past year, NOK has lost 6.8%, whereas NTGR lost 16.7%. Over the past month, NOK has gained 5.7%, and NTGR has gained 6.9%. Over the past five days, NOK has gained 4.6% to close its last trading session at $4.28, while NTGR returned 5.4% to close its last trading session at $14.93.
But which stock has a better value now? Let’s find out.
Latest Developments
On June 19, NOK announced that it had won a new three-year deal with Virgin Media O2 to supply Radio Access Network (RAN) equipment from its market-leading AirScale portfolio, continuing the long-standing partnership of over twenty years between the two companies.
As a result of the extended deal, more people are likely to benefit from enhanced mobile connectivity delivered by NOK’s latest generation of AirScale solutions.
On May 10, NTGR launched its latest innovation, the Nighthawk M6 Pro 5G WiFi 6E Hotspot Router (MR6550). With its advanced 5G mmWave and WiFi 6E capabilities, this powerful device could deliver ultra-fast internet speeds and enhanced connectivity. It is powerful enough for remote business sites and portable for daily commuting.
Recent Financial Results
NOK’s net sales increased 9.6% year-over-year to €5.86 billion ($6.40 billion) in the fiscal first quarter (ended March 31, 2023). Its operating profit increased 20.3% year-over-year to €426 million ($465.43 million). Also, its profit and earnings per share increased 32% and 25% year-over-year to €289 million ($315.75 million) and €0.05, respectively.
For the fiscal first quarter that ended April 2, 2023, NTGR’s net revenue declined 14.1% year-over-year to $180.91 million. Its loss from operations stood at $11.98 million. Moreover, its non-GAAP net loss and net loss per share stood at $5.64 million and $0.19, respectively.
Furthermore, for the quarter that ended April 2, 2023, NTGR’s cash and cash equivalents came in at $143.19 million, down 30.8% from the year-ago value. Also, its total current assets, as of April 2, 2023, stood at $799.42 million, compared to $834.29 million as of December 31, 2022.
Past and Expected Financial Performance
NOK’s total assets grew at 1.8% CAGR over the past three years, while NTGR’s grew at 4% CAGR over the same period. However, NOK’s revenue has grown at 3.1% and 2.3% CAGRs over the past three and five years, respectively, whereas NTGR’s revenue declined by 2.7% and 1.2% CAGRs over the same period.
NOK’s revenue and EPS are expected to rise 14.2% and 14.6% year-over-year to $6.97 billion and $0.11, respectively, for the fiscal third quarter ending September 2023.
For the fiscal year ending December 2023, its EPS is expected to come in at $0.45, whereas its revenue for the same period is expected to increase 3.1% year-over-year to $27.95 billion. Additionally, the stock topped consensus revenue estimates in each of the trailing four quarters, which is impressive.
NTGR’s revenue and EPS are expected to decline 24.3% and 39.3% year-over-year to $188.85 million and $0.13, respectively, for the fiscal third quarter ending September 2023. For the fiscal year ending December 2023, its EPS is expected to come in at negative $0.11, whereas its revenue for the same period is expected to decline 20.3% year-over-year to $743.68 million.
Profitability
NOK has a trailing-12-month gross profit margin of 40.66% compared to NTGR’s 27.92%. NOK’s trailing-12-month ROCE, ROTA, and ROTC of 21.91%, 6.86%, and 6.53% compare with NTGR’s negative 3.42%, 0.36%, and 2.94%, respectively. Furthermore, NOK’s cash from operations of $1.08 billion compares with NTGR’s negative $5.90 million.
Hence, NOK is more profitable.
Valuation
NTGR’s forward EV/Sales multiple of 0.32 is 58.4% lower than NOK’s 0.77. However, NOK’s forward EV/EBITDA ratio of 5.09 is 86.5% lower than NTGR’s 37.69x. Moreover, NOK’s five-year average forward non-GAAP P/E of 15.39x is 54.5% lower than NTGR’s five-year average forward non-GAAP P/E of 33.83x.
Hence, NOK is cheaper.
POWR Ratings
NOK and NTGR’s fundamentals could be better understood from our proprietary POWR Ratings system. The POWR Ratings are calculated considering 118 different factors, with each factor weighted to an optimal degree.
Our proprietary rating system also evaluates each stock based on eight distinct categories. NOK has a Value grade of A, consistent with its forward Price/Cash Flow of 9.18x, 42.9% lower than the five-year average of 16.08x.
NTGR has a B grade for Value, which is justified by its forward Price/Sales of 0.58x, 29.2% lower than the five-year average of 0.82x.
Moreover, NOK’s C grade for Quality is in sync with its trailing-12-month gross profit margin of 40.66%, 17.4% lower than the 49.24% industry average, while its trailing-12-month EBIT margin of 10.38% is 141% higher than the 4.31% industry average.
Also, NTGR has a Quality grade of C, which is justified by its trailing-12-month gross profit margin of 27.92%, which is 43.3% lower than the 49.24% industry average, while its trailing-12-month asset turnover ratio of 0.90x is 48.5% higher than the 0.61x industry average.
Of the 51 stocks in the Technology - Communication/Networking industry, NOK is ranked #14, while NTGR is ranked #41.
Beyond what we’ve stated above, we have also rated both stocks for Growth, Momentum, Stability, and Sentiment. Get all ratings of NOK here. To view NTGR’s ratings, click here.
The Winner
Soaring demand for better connectivity in a fast-paced world is the utmost necessity, which could keep the communication technology industry fortified and maintain its momentum in the long run.
However, given NOK’s cheaper valuation, NOK could be a better choice for investors than NTGR.
Moreover, on May 4, NOK paid a dividend of €0.03 per share to its shareholders and pays an annual dividend of $0.12, which translates to a 2.7% yield on the current share price. Its four-year average dividend yield is 1.04%.
The company’s shareholder payback abilities are reflected here, and therefore, investors seeking for a stable return could even consider adding the stock to the watchlist now.
Our research shows that the odds of success increase when one invests in stocks with an Overall Rating of Strong Buy or Buy. View all the top-rated stocks in the Technology - Communication/Networking industry here.
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NOK shares were trading at $4.20 per share on Tuesday afternoon, down $0.08 (-1.87%). Year-to-date, NOK has declined -8.74%, versus a 14.42% rise in the benchmark S&P 500 index during the same period.
About the Author: Sristi Suman Jayaswal
The stock market dynamics sparked Sristi's interest during her school days, which led her to become a financial journalist. Investing in undervalued stocks with solid long-term growth prospects is her preferred strategy. Having earned a master's degree in Accounting and Finance, Sristi hopes to deepen her investment research experience and better guide investors.
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