The performance of the mobile telecoms sector has been rather impressive over the last year. For example, shares in Vodafone (LSE: VOD) (NASDAQ: VOD.US) have risen by 24%, with an improving outlook for the Eurozone helping to boost investor sentiment in the stock. Meanwhile, two of Vodafone’s smaller sector peers, Avanti (LSE: AVN) and Gamma (LSE GAMA), have also fared particularly well over the last year, with their shares rising by 21% and 36% respectively. Looking ahead, which of the three companies will be the best performer?
Challenging Bottom Lines
In recent years, Vodafone has struggled to generate impressive financial performance. Part of the reason for that has been external factors, with a troublesome Eurozone doing little to help a business that remains very much European-focused. However, Vodafone has also made life much more difficult for itself with the sale of its stake in the Verizon Wireless joint venture which, while providing its investors with a tidy lump sum, reduced Vodafone’s regional diversity and removed the most profitable part of the business. As such, Vodafone’s poor net profit figures in recent years appear to be at least partly of its own making.
However, things are set to change for Vodafone. For example, in the current year, it is expected to deliver a small increase in earnings, followed by growth of 15% next year. Clearly, this is causing investor sentiment to improve and, looking ahead, Vodafone’s share price could continue to move upwards.
Meanwhile, Avanti and Gamma continue to offer rather downbeat prospects. Certainly, Gamma is expected to remain profitable during the next two years, but its bottom line is forecast to be just 2% higher in 2016 than it was in 2014. This, then, is unlikely to catalyse investor sentiment and lead to continued above-average share price performance.
Similarly, Avanti is due to remain loss-making in each of the next two years and, while the company continues to have upbeat long term prospects, there appears to be little for investors to get excited about in the short to medium term. Certainly, revenue is set to improve and losses are due to fall, but the market may need a black bottom line in order to warrant further strong gains in Avanti’s share price.
As well as having superior growth prospects in the next two years, Vodafone continues to be a top notch income stock, too. For example, it currently yields 4.9% which, with interest rates unlikely to move higher over the medium term, could attract investors and cause the company’s shares to be bid up. Meanwhile, Avanti pays no dividend and Gamma yields just 2.1%.
So, while all three stocks have had a great year, Vodafone appears to offer the best growth prospects, highest yield and, additionally, the most stable, robust and consistent performance. As such, it seems to be the one to buy, with its long term future much brighter as a result of an improving operating environment.
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Peter Stephens has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.