In this article, I evaluated Finland-based Nokia Oyj (NOK - Get Rating) and Extreme Networks, Inc. (EXTR - Get Rating) to determine the dominant tech stock. After thoroughly evaluating these stocks, I think EXTR might be a superior choice for the reasons discussed in this article.
The IT Services market in United States has been experiencing a significant growth in recent years, driven by technological advancements, increasing demand for cloud computing, and the need for digital transformation across industries. Worldwide IT spending is projected to increase 3.5% year-over-year to $4.69 trillion in 2023 and grow 8% year-over-year to $5.07 trillion next year.
In addition, increased adoption of wireless technologies and the need for faster data transmission in among various verticals such as manufacturing, healthcare, aerospace & defense, industrial, automotive, and many other sectors is expected to drive growth in the communication network market. The global communication networks market is expected to grow at a CAGR of 3.6% until 2028.
NOK declined 30.3% over the past nine months compared to EXTR’s 6.2% gain. The stock has also declined 6.6% over the past month compared to EXTR’s 11.6% gain.
Here are the reasons why I think EXTR might perform better in the near term:
Recent Developments
On December 12, 2023, NOK announced that it had signed an agreement to acquire Fenix Group, a privately held company that specializes in tactical 3rd Generation Partnership Project (3GPP) communications solutions for the defense communities.
Conversely, on November 7, 2023, EXTR introduced ExtremeCloud Universal Zero Trust Network Access (ZTNA). This subscription service integrates network, application, and device security, simplifying management and enhancing security across locations such as campuses and remote sites. Universal ZTNA ensures consistent security policies, cost efficiency, and streamlined user network access management.
Recent Financial Results
For the third quarter that ended September 30, 2023, NOK’s net sales declined 20% year-over-year to €4.98 billion ($5.38 billion). NOK’s operating profit decreased 53% from the year-ago value to €241 million ($260.41 million). Its profit for the period declined 69% year-over-year to €133 million ($143.71 million), and its EPS came in at €0.02, down 75% year-over-year.
On the contrary, EXTR’s total net revenues for the first quarter ended September 30, 2023, increased 18.6% year-over-year to $353.14 million. The company’s non-GAAP operating income increased 72.8% year-over-year to $62.49 million. Its non-GAAP net income increased 71.8% year-over-year to $46.54 million. Also, its non-GAAP net income per share came in at $0.35, representing an increase of 75% year-over-year.
Past And Expected Financial Performance
Over the past three years, NOK’s revenue increased at a 2.6% CAGR. Analysts expect NOK’s revenue to decline by 6.6% this year and 11.6% in the fourth quarter ending December 2023. Its EPS is expected to decline 21.9% in the current year but increase 3.5% over the fiscal fourth quarter (ending December 2023).
Conversely, EXTR’s revenue has increased at a CAGR of 13.8% over the past three years. Its revenue is expected to increase 5.8% in the fiscal year ending June 2024 and marginally in the fiscal second quarter ending December 2023. Its EPS is expected to rise 5.8% in the fiscal year ending June 2024 and 7% in the second quarter ending December 2023.
Valuation
NOK’s forward EV/EBITDA multiple of 4.45 is lower than EXTR’s 8.91. NOK’s forward EV/Sales multiple of 0.66x is lower than EXTR’s 1.71x.
Profitability
NOK’s trailing-12-month gross profit margin of 39.98% is lower than EXTR’s 58.55%. In addition, NOK’s trailing-12-month levered FCF margin of negative 6.53% is lower than EXTR’s 13.70%.
Thus, EXTR is more profitable.
POWR Ratings
NOK has an overall rating of C, which equates to a Neutral in our proprietary POWR Ratings system. Conversely, EXTR has an overall rating of B, translating to Buy. 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. INTC has a C grade for Quality. Its trailing-12-month gross profit margin and trailing-12-month levered FCF margin of 39.98% and negative 6.53% are lower than the industry averages of negative 17.85% and 8.41% respectively.
On the other hand, EXTR has an A grade in Quality. Its trailing-12-month gross profit margin of 58.55% is 20.3% higher than the industry average of 48.67%. Its trailing-12-month levered FCF margin of 13.70% is 63% higher than the 8.41% industry average.
Among the 46 stocks in the in the Technology – Communication/Networking industry, NOK is ranked #27, while EXTR is ranked #4.
Beyond what we’ve stated above, we have also rated both stocks for Stability, Momentum, Growth, Value, and Sentiment. Get all NOK ratings here. Click here to view EXTR ratings.
The Winner
The tech industry is seeing growth due to increased demand for telecommunications services and the adoption of emerging technologies. Industry players such as NOK and EXTR are well-positioned to benefit from these industry tailwinds.
EXTR’s higher profitability and robust performance makes it the better buy here.
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.
What To Do Next?
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EXTR shares were trading at $18.46 per share on Thursday morning, up $0.32 (+1.76%). Year-to-date, EXTR has gained 0.82%, versus a 24.92% rise in the benchmark S&P 500 index during the same period.
About the Author: Nidhi Agarwal
Nidhi is passionate about the capital market and wealth management, which led her to pursue a career as an investment analyst. She holds a bachelor's degree in finance and marketing and is pursuing the CFA program. Her fundamental approach to analyzing stocks helps investors identify the best investment opportunities. More...
More Resources for the Stocks in this Article
| Ticker | POWR Rating | Industry Rank | Rank in Industry |
| EXTR | Get Rating | Get Rating | Get Rating |
| NOK | Get Rating | Get Rating | Get Rating |
