Is Nokia Oyj (NYSE:NOK) Undervalued After Its Sharp Pullback Or Is The P/E Too High?

Nokia Oyj (NYSE:NOK) has stayed on investors’ radar recently, with the stock moving between gains and declines while its network infrastructure, mobile networks and cloud services businesses continue to shape expectations around the company’s long term earnings power.

See our latest analysis for Nokia Oyj.

The recent pullback, with a 1 day share price return of down 6.47% and a 30 day share price return of down 30.05%, contrasts with Nokia Oyj’s 1 year total shareholder return of 113.88%. Recent momentum has clearly faded even as longer term holders have seen strong gains.

If you are weighing Nokia Oyj against other opportunities in digital infrastructure and connectivity, this could be a useful moment to scan 35 power grid technology and infrastructure stocks

Nokia Oyj’s sharp pullback after a strong 1 year run sets up a simple tension: is this reset clearing room for more upside, or has most of the easy progress already played out ahead of the current valuation?

Price-to-Earnings of 65.6x: Is it justified?

Nokia Oyj closed at $9.10 while trading on a P/E of 65.6x, which screens as expensive even though some tools suggest the stock sits below an estimated fair value.

The P/E ratio compares the current share price with earnings per share, so a higher multiple usually means investors are paying more today for each dollar of current earnings. For a company like Nokia Oyj this often reflects expectations for future profit growth rather than current profitability alone.

On one side, Nokia Oyj's earnings are expected to grow significantly over the next few years, which can help support a higher multiple if those forecasts materialise. On the other side, return on equity is currently low at 3.3% and is forecast to remain below the 20% threshold that many investors look for, so the market is paying a premium multiple despite relatively modest profitability metrics.

Against the US Communications industry, Nokia Oyj's 65.6x P/E is described as expensive versus an average of 32.2x. However, it is viewed as good value relative to a peer group average P/E of 82.1x. Compared with an estimated fair P/E of 53.9x, the current level is higher, which points to a valuation that could move closer to that fair ratio if expectations adjust over time.

Explore the SWS fair ratio for Nokia Oyj

Result: Price-to-Earnings of 65.6x (OVERVALUED)

However, Nokia Oyj’s relatively high P/E, combined with its modest 3.3% return on equity and recent share price volatility, could pressure sentiment if earnings or profitability expectations soften.

Find out about the key risks to this Nokia Oyj narrative.

Another View on Nokia Oyj using our DCF model

While the P/E of 65.6x suggests Nokia Oyj looks expensive on earnings, our DCF model points in a different direction, with the stock at $9.10 trading about 26% below an estimated future cash flow value of $12.34. That gap could reflect mispricing or simply uncertainty, so which signal do you trust more?

To see how this cash flow view is built and what assumptions sit underneath it, take a closer look at the SWS DCF model: Look into how the SWS DCF model arrives at its fair value.

Simply Wall St performs a discounted cash flow (DCF) on every stock in the world every day (check out Nokia Oyj for example). We show the entire calculation in full. You can track the result in your watchlist or portfolio and be alerted when this changes, or use our stock screener to discover 49 high quality undervalued stocks. If you save a screener we even alert you when new companies match - so you never miss a potential opportunity.

Next Steps

Does the mix of strong past returns and current valuation questions around Nokia Oyj leave you intrigued or cautious? To weigh that balance for yourself, review both the upside potential and the issues investors are flagging by checking the 2 key rewards and 4 important warning signs

Looking for more investment ideas beyond Nokia Oyj?

If Nokia Oyj has sharpened your interest in listed opportunities, do not stop here. Use the Simply Wall St screener to uncover other focused ideas that fit your style.

• Target cash generators with proven resilience by reviewing companies in the solid balance sheet and fundamentals stocks screener (49 results) that can help anchor a more defensive core to your portfolio.
• Hunt for mispriced opportunities by scanning the 49 high quality undervalued stocks and see which stocks currently trade below their assessed worth based on fundamentals.
• Secure potential income streams by analysing the 9 dividend fortresses and filter for companies offering higher yields backed by underlying financial strength.

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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