Stock market

At 72p, is Vodafone’s share price really a bargain?

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gave Vodafone (LSE: VOD) shares fell 5.6% last week, reversing a good chunk of the gains it has made this year. That means a share in the telecommunications titan is worth just 72p.

It looks cheap. Five years ago, I would have taken out 129.9p. A decade ago, I paid 191p. At the height of its powers in the dot-com era, a share was worth 452.1p!

You get the summary. Today, Vodafone Think Like an absolute bargain. But is it really so?

Value

One of the easiest ways to understand this is to look at its price-to-earnings (P/E) ratio. It currently sits at 19.1. It’s on top of that. FTSE 100 An average of 11, suggests that the stock does not offer much value at this time.

Its forward P/E for 2024, which works out its forecast earnings, is 14.9. It’s a bit cheaper, but it’s still not a bargain.

My concerns

My main concern is looking at its balance sheet. It has net debt of €33.2bn on its books. This is a relative amount. High interest rates certainly won’t help pay it off either.

On top of that, I’m concerned about its rising share price. Over the past five years, the stock has lost 44.6% of its value. Could it be that Vodafone is just a value trap? During the same period, Footsie has grown by 12.4%.

Add to that the fact that Vodafone has had a real challenge growing its top line in recent years, and I’m holding off on snapping up any shares, even if they look cheap at 72p.

Balancing the books

That said, the business is trying to balance its books by trimming some of the fat. It has sold its Spanish business for €5bn while it looks set to part with its Italian business for €8bn.

On the back of this, it recently announced a €2bn share buyback scheme, with the funds being used to reduce its debt. A further €2bn buyback program is rumored to be imminent. This may keep the shareholders happy for a while.

These moves feed into his transformation strategy more broadly. We are already seeing positive signs from this. There are other aspects that excite me about the firm, such as its growing African business.

I would avoid it.

Vodafone is a stock I would avoid for now. Its share price decline is attractive, but I see better options on Footsy for me.

That said, if the stock continues to fall, it may become too cheap to ignore. After all, I see signs of promise with Vodafone, so I’ll keep it on my watchlist for now.

His debt is my main concern and I want to see what other steps he plans to take to reduce it going forward. It has ambitious development plans, but I’m aware that the massive pile-up could get in the way. Its falling yield, which is set to halve next year, is another problem I have with the stock.


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