The Motley Fool

The Vodafone share price is soaring in 2021! Should I buy the stock 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.

Family with small yellow dog embracing at hill and looking at sunset
Image source: Getty Images

The Vodafone (LSE: VOD) share price has soared over the past few months. Since the beginning of the year, shares in the telecommunications giant are up around 10%, excluding dividends.

And the stock’s longer-term performance is even more impressive. Over the past 12 months, shares in the company have increased in value by over 26%, excluding dividends.

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!

Including investor distributions, the Vodafone share price has produced a total return for investors of 45% over the past year, outperforming the FTSE 100 by 10%.

After this impressive performance, some investors might be wary of buying the stock as the share price now looks expensive compared to this time last year. However, past performance should never be used as a guide to future potential. What’s more, despite Vodafone’s recent performance, the stock still looks cheap, in my opinion. 

 Company outlook 

Shares in the company have received a boost recently from management’s decision to spin off the group’s tower business. Vodafone has set the price range for a float of its mast organisation Vantage Towers, which could value the firm at about €17bn. Of this, the parent will raise €2.8bn to pay down debt. 

Vodafone’s weak balance sheet has always stuck out to me as a reason not to invest in the business. So, it’s positive that management is doing something about this.

Unfortunately, €2.8bn is really only a drop in the ocean for the group. Vodafone’s total net debt stood at €44bn (£38bn) at the end of September.

Still, it’s not the size of the debt that matters. Its affordability. As long as Vodafone can afford the interest payments on its debt, creditors should be happy.

On this front, Vodafone can afford its borrowings. In its last financial year, the group’s interest and financing costs amounted to €1.6bn, easily covered by adjusted operating profit of €4.6bn. 

Of course, just because the company was able to meet its obligations last year doesn’t mean it’ll continue to do so. A sudden increase in interest rates or drop in earnings could impact its ability to maintain its debts.

This is the most considerable risk facing the Vodafone share price, in my opinion. Running a telecoms business is very expensive. The corporation needs to acquire new equipment every year, as well as spectrum rights. These two costs amounted to around €8bn in the organisation’s latest financial year. If these costs rise significantly, they could impact the company’s ability to maintain its debt and pay a dividend to investors.

Vodafone share price potential 

Still, it seems to me the company is on the right track for the time being. It’s working to reduce debt, and customers appear to be happy with its level of service. The total number of customers using Vodafone’s mobile network across Europe in its fiscal third quarter increased by 1.2m, or 2%.

The stock also supports one of the highest dividend yields in the FTSE 100. It currently stands at around 6% although, as noted above, this distribution isn’t guaranteed. 

This distribution, coupled with the group’s potential to grab a larger share of the European telecommunications market, means I’d buy Vodafone for my portfolio today, despite the stock’s recent performance.

There’s a ‘double agent’ hiding in the FTSE… we recommend you buy it!

Don’t miss our special stock presentation.

It contains details of a UK-listed company our Motley Fool UK analysts are extremely enthusiastic about.

They think it’s offering an incredible opportunity to grow your wealth over the long term – at its current price – regardless of what happens in the wider market.

That’s why they’re referring to it as the FTSE’s ‘double agent’.

Because they believe it’s working both with the market… And against it.

To find out why we think you should add it to your portfolio today…

Click here to get access to our presentation, and learn how to get the name of this 'double agent'!

Rupert Hargreaves has no position in any of the shares mentioned. 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.