Right now I’m looking at some of the most popular companies in the FTSE 100 and wider market to try and establish if there is still time for investors to buy in.
Today I’m looking at Vodafone (LSE: VOD) (NASDAQ: VOD.US) to ascertain if its share price has the potential to push higher.
Current market sentiment
The best place to start assessing whether or not Vodafone’s share price has the potential to push higher, is to take a look at the market’s current opinion towards the company. At present, it would appear that the market is somewhat doubtful of Vodafone’s future plans, now that the company has finally disposed of its Verizon Wireless share.
Indeed, Vodafone is now struggling to justify its high valuation, as earnings are set to fall during the next few years and the company is rushing to acquire growth through acquisitions. Specifically, current City forecasts predict that Vodafone’s earnings will slump by more than 50% during 2015.
Nevertheless, through acquisitions Vodafone’s management is broadening the company’s reach, outside of the telecommunications sector. However, some investors are not happy with the way Vodafone is changing and worry that the company has rushed into recent acquisitions.
The most important concern on some investors mind is the fact that Vodafone could be overpaying for acquisitions as it rushes to spend cash from the Verizon deal. One analyst has described Vodafone’s recent deal to acquire Spanish cable operator, Ono as, “eye-wateringly expensive”.
Upcoming catalysts
Still, Vodafone’s management remains upbeat about the future and believe that the company is moving in the right direction by expanding outside of the telecoms sector. What’s more, Vodafone’s acquisition strategy should provide a boost to the company’s earnings during the next few years as synergies from the deals filter through.
That said, it is unlikely that income from Vodafone’s recent deals will be able to offset the lost income from Vodafone’s Verizon holding.
Valuation
Unfortunately, after a year of outperforming the market, Vodafone’s shares now look expensive and at present levels, the company’s shares are now trading at a valuation not seen since the dot-com bubble.
In particular, Vodafone’s shares have traded at an average forward P/E of around 12 during the past decade but now, the company’s shares are trading at an eye watering forward P/E of 25. Additionally, Vodafone’s shares are trading at this valuation even though the company’s earnings are expected to decline during the next few years.
Foolish summary
Vodafone’s share have put in an impressive performance during the past year or so but now the company has finally closed the deal to sell its share of Verizon Wireless, future growth is going to be sluggish.
So overall, I feel that Vodafone is overvalued at current levels.
