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Vodafone’s (LSE: VOD) share price is trading around its 17 September one-year traded high of 79p.
This might deter some investors from buying on the idea that there cannot be much value left in the shares. Others might think the time is right to buy, as surely the stock has developed an unstoppable bearish momentum.
Neither approach is optimal for making major returns over time, in my experience.
Instead, as a former senior investment bank trader and longtime private investor I am only concerned with value. This is not the same as price and it is in the gap between them that big profits can be made.
To ascertain the truth in Vodafone’s case, I looked again at the business and ran the key numbers.
The 2025 results
The firm’s full-year 2025 results released on 20 May saw reported revenue increase 2% year on year to €37.4bn (£31.48bn).
Service revenue rose 2.8% to €30.8bn, with an anticipated slowdown in Germany offset by growth in Europe, Africa and Turkey.
The company underlined that it is seeing positive steps in its strategic reset begun two years ago.
Part of this involved focusing on growing telco markets with strong positions and local scale. To this end it has completed the sale of Vodafone Spain and Vodafone Italy. And the merger with Three UK will be completed by the end of June.
Another key element of this is growing digital services. These now constitute around 10% of service revenue, with B2B digital services up 26.1% over the last two years.
A risk here is any mishandling of the Three UK merger that could prove costly and damage its reputation.
Are the shares a bargain?
Vodafone’s 9.1 price-to-earnings ratio is bottom of its competitor group, which averages 18.8. This comprises Deutsche Telekom at 13.5, Orange at 17.3, BT at 21.5, and Telenor at 22.9.
So the firm looks a major bargain on this measure.
The same is true of its 0.6 price-to-sales ratio compared to its peer group’s average of 1.4. And it also looks a serious bargain with a price-to-sales ratio of 0.4 against a competitor average of 2.
The second part of my assessment involves running a discounted cash flow (DCF) analysis. This pinpoints where any firm’s share price should be, centred around future cash flow forecasts for it.
The DCF for Vodafone shows its shares are 45% undervalued at their present price of 78p.
Therefore, their fair value is £1.42, although market vagaries could move them lower or higher.
The (still good) yield
In 2024, Vodafone paid a total dividend of 9 euro cents, which yields a whopping 10.4%. However, this will be halved this year, although it still compares favourably to the average FTSE 100 yield of 3.5%.
That said, I never buy shares priced under £1, as the price volatility is an extra risk I refuse to take, being over 50 as I am. The younger someone is, the more time they can afford to wait for stocks to recover from any shocks.
Nonetheless, I think Vodafone is well worth younger investors’ consideration. I think it is set for strong growth that will drive its share price – and dividends — higher long term.
