CHARTED HOLDINGS

Earnings season continues to be at the forefront of my mind, only this week my focus has shifted from Netflix to Nokia. Nokia is scheduled to report its quarterly results on 7/23 before market open, and at the time of this writing it is my worst-performing position. So much so that I’m beginning to wonder if I purchased a bulk of my shares at an unreasonably high price.

Since I am still learning how to derive the intrinsic value of a business, I turned to the “next best thing”: relative valuation, more specifically the P/E ratio. For those who aren’t aware, of whom I used to be one, “the P/E ratio is often a useful measure of whether any stock is overpriced, fairly priced, or underpriced relative to a company’s money-making potential.”¹ It is calculated by taking a company’s current stock price and dividing it by the earnings per share (EPS). The two most commonly used P/E ratios are the Trailing P/E, which uses the company’s reported EPS for the prior 12 months, and the Forward P/E, which uses estimated net earnings for the upcoming 12 months. Comparing a company’s P/E ratio to its own historical average, that of its competitors and its earnings growth rate is step I skipped before purchasing my shares of Nokia.

Had I done so, I might have determined that Nokia was overpriced when I began building my position and waited to purchase shares at a lower price. Here’s why: Nokia had a trailing P/E ratio of 135 (this number may be slightly inaccurate, as I used the price at which I purchased shares, $16.20, and divided it by 0.12, the EPS for 2025, not the TTM EPS from May 2026). If Nokia’s earnings stay consistent, I’ll be dead long before I earn back my initial investment, “as the P/E ratio can be thought of as the number of years it will take the company to earn back the amount of your initial investment”.¹

The picture gets grimmer when comparing this to its past P/E ratios over the last five years, calculated at the beginning of each year: 21.7 (2022), 6.24 (2023), 28.25 (2024), 19.56 (2025), 54.75 (2026). The same can be said when comparing it to the P/E ratio of its competitors. Since Nokia is involved in a wide range of businesses, it also has a wide range of competitors, all of which had drastically lower P/E ratios at the time I began purchasing shares of $NOK: $ERIC 1.60, $ANET 57.27, and $CSCO 46.18.

Lastly, “the P/E ratio of any company should equal its growth rate of earnings”¹ meaning PEG, the P/E ratio divided by the growth rate, should equal 1. With a P/E ratio of 135, Nokia’s growth rate would need to be 135% YoY. Nokia’s current growth rate isn’t even positive, declining 47.86% in 2025. In other words, Nokia failed to grow over this period, making the trailing PEG calculation worthless. Here is where things get a bit more interesting: analyst EPS estimates for the current year are between 0.36 and 0.44. Using these estimates and the trailing P/E ratio, I calculated at the time of my purchase, Nokia had forward PEG of 0.68 and 0.51 indicating that I may have actually purchased Nokia at a bargain.

As the numbers suggest the fate of my position depends entirely upon Nokia’s ability to generate insane growth through its implementation of AI into its existing businesses. Failing to do so will almost certainly mean I spent far too much on my original share purchase.

As of right now, Nokia only accounts for about 3.5% of my account. I have intentionally limited  my exposure to this risky play until the company shows substantial growth on the AI front. My portfolio is up 2.63% YTD.

Look to next week's issue for thoughts on Nokia’s quarterly results. As always thanks for reading!

- Eric Seel

Disclaimer: Charted Holdings is for informational and educational purposes only and does not constitute financial, investment, legal, or tax advice. I am not a registered investment adviser, broker-dealer, or financial planner. The companies, securities, and strategies discussed reflect my personal opinions and research, and may be positions I currently hold. Nothing here should be construed as a recommendation to buy, sell, or hold any security. Investing involves risk, including the potential loss of principal, and past performance is not indicative of future results. Do your own research and consult a licensed financial professional before making investment decisions.