The Motley Fool

Will the Vodafone share price rise in 2021?

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.

Image of person checking their shares portfolio on mobile phone and computer
Image source: Getty Images.

The Vodafone (LSE: VOD) share price has been volatile since the beginning of the year. But the stock is up 8% so far in 2021 and over 20% in 12 months.

Of course, past performance is not an indication of future returns and I’m not convinced the stock will rise further in 2021. Here’s why.

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…

Bull case

I’m going to start with the positives and discuss what I think has been driving the Vodafone share price so far.

I reckon the main catalyst has been that it has now successfully spun out its Vantage Towers business through an Initial Public Offering (IPO) on the Frankfurt stock exchange.

I commented on this back in December and it’s pleasing to see this has now been completed. But why has this helped the Vodafone share price? Well, the company expects €2.8bn from the flotation, which is likely to be used to reduce the debt burden. It’s always good to hear that a company is looking to reduce its liabilities.

Another factor that may be driving the Vodafone share price is its dividend yield. The company is known for its income payments. The stock is currently offering an attractive 6% and I reckon investors are still on the hunt for dividends.

The UK government also recently auctioned a new tranche of its 5G spectrum network. And Vodafone managed to get a slice of the action. I guess this gives investors some confidence that the FTSE 100 company is making advances in the 5G space.

Bear case

While I commend the telecoms company for attempting to reduce its debt, it still has a long way to go. I feel this could hang over the Vodafone share price and hinder the stock from rising further this year.

According to its interim results last November, the overall net debt position is €44bn. When I convert this into GBP, that’s approximately £38bn. Let me put this into perspective. If an investor purchased Vodafone shares today, they would be buying a stake in a company that has a market capitalisation that’s equal to its net debt position.

This makes me uncomfortable. In fact, I’d go as far to say this doesn’t make investment sense to me. What would change my mind, is to see more evidence of a reduction in its debt.

I mentioned Vodafone’s attractive dividend yield earlier. But what I think is worth highlighting is that it’s not fully covered by its earnings. In 2019, the company cut its dividend and there’s no guarantee the income payments will continue. Revenue was hit by the pandemic and this could happen again. Which means the dividend could be in jeopardy.

My view

I think Vodafone has a long way to go. It operates in an very competitive industry where customers are fickle and go with the cheapest deal.

My main concern is over its debt pile, which I think will take time to bring down to a more manageable position. When looking at the risk-reward profile, I’m not convinced the Vodafone share price will rise further in 2021. Hence I’ll only be watching the stock for now.

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…

Nadia Yaqub 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.