The Motley Fool

FTSE 100-member Vodafone’s share price has slumped 33% in 1 year. This is what I’d do now

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

A stock price graph showing declines, possibly in FTSE 100
Image source: Getty Images.

The last year has seen a continued downfall for the Vodafone (LSE: VOD) share price. It has declined by 33% in just 12 months, with investors now appearing to view it very differently than they did just a few years ago.

Back then, it had almost utility-like status in the eyes of investors. Its dividend was high but reliable, while its growth prospects were steady and robust. Now, though, it is viewed as somewhat risky by investors, with its financial outlook causing a degree of fear among investors.

5 Stocks For Trying To Build Wealth After 50

Markets around the world are reeling from the coronavirus pandemic… and with so many great companies trading at what look to be ‘discount-bin’ prices, now could be the time for savvy investors to snap up some potential bargains.

But whether you’re a newbie investor or a seasoned pro, deciding which stocks to add to your shopping list can be a daunting prospect during such unprecedented times.

Fortunately, The Motley Fool UK analyst team have short-listed five companies that they believe STILL boast significant long-term growth prospects despite the global upheaval…

We’re sharing the names in a special FREE investing report that you can download today. And if you’re 50 or over, we believe these stocks could be a great fit for any well-diversified portfolio.

Click here to claim your free copy now!

Could it now offer recovery potential? Or, is it worth avoiding alongside what appears to be an overpriced stock that released a trading update on Monday?

High valuation

The company in question is safety and regulatory compliance specialist Marlowe (LSE: MRL). Its 2019 financial year saw good progress for the business, with its revenue rising by 62% to £130m. Acquisitions and broad-based organic growth contributed to its improved performance, while adjusted EBITDA (earnings before interest, tax, depreciation and amortisation) is due to be slightly ahead of expectations.

Although the company appears to have a bright financial future, with its bottom line forecast to rise by 15% in the current year, it seems to be overpriced. For example, Marlowe trades on a price-to-earnings growth (PEG) ratio of 2.2, which suggests that it lacks a margin of safety. Therefore, it may be worth avoiding at the present time, with there being better-valued opportunities available elsewhere.

Low valuation

By contrast, Vodafone now seems to offer a wide margin of safety. Clearly, it is unusual for a FTSE 100 company with the track record of dividend payments that Vodafone has to experience such a large share price fall at a time when the wider index has fared much better.

However, investors now seem to be anticipating a lower growth rate in earnings over the long run. The company’s shares trade on a price-to-earnings (P/E) ratio of around 14, while their dividend yield of over 9% suggests that there is a lack of confidence among investors regarding dividend growth. Indeed, there are concerns among some investors that a dividend cut may be ahead, such are the financial commitments resulting from an aggressive acquisition and investment strategy.

A change in management may mean a period of greater instability in the short term. But the company’s fundamentals suggest that it could offer strong growth. As well as a fair valuation and a high yield, the company’s performance outside of Europe was strong according to its recent update. Changes being made to its structure could create a simpler business that is better positioned to deliver improving earnings growth.

Therefore, for income and value investors alike, now could be the right time to buy Vodafone. It could offer recovery potential in the long run as a result of a favourable risk/reward ratio.

One Killer Stock For The Cybersecurity Surge

Cybersecurity is surging, with experts predicting that the cybersecurity market will reach US$366 billion by 2028more than double what it is today!

And with that kind of growth, this North American company stands to be the biggest winner.

Because their patented “self-repairing” technology is changing the cybersecurity landscape as we know it…

We think it has the potential to become the next famous tech success story.

In fact, we think it could become as big… or even BIGGER than Shopify.

Click here to see how you can uncover the name of this North American stock that’s taking over Silicon Valley, one device at a time…

Peter Stephens owns shares of Vodafone. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Our 6 'Best Buys Now' Shares

Renowned stock-picker Mark Rogers and his analyst team at The Motley Fool UK have named 6 shares that they believe UK investors should consider buying NOW.

So if you’re looking for more stock ideas to try and best position your portfolio today, then it might be a good day for you. Because we're offering a full 33% off your first year of membership to our flagship share-tipping service, backed by our 'no quibbles' 30-day subscription fee refund guarantee.

Simply click below to discover how you can take advantage of this.