This year has got off to a great start for holders of Vodafone (LSE: VOD) shares. Since the turn of the year, the shares have jumped by more than a fifth. But this rebound came after this FTSE 100 stock crashed hard over the previous six months.
Price slump
Way back in our pre-Covid-19 past, Vodafone shares closed at 210p on 20 April 2018. But telecoms shares have been under heavy pressure over the past five years, with Vodafone being no exception.
Here are the year-end milestones for it over the past three calendar years:
| End-2020 | 120.94p |
| End-2021 | 112.26p |
| End-2022 | 84.24p |
Looking at this table from the point of view of Vodafone’s owners, it looks like the telecoms giant is in managed decline. However, the shares have shot up since the end of last year.
On Friday, Vodafone stock closed at 102.38p, up an impressive 21.5% so far in 2023. Even so, they’ve lost 25.8% of their value in the past 12 months. Even worse, they’re down by almost exactly half over the past five years. Oh dear.
We bought Vodafone in December
In November, with the Vodafone share price above £1, I turned down the opportunity to buy this slumping stock. But in December, my wife bought into the global group at 90.2p a share.
Of course, as so often happens, the shares promptly fell even further. They eventually found their 2022 low of 83.24p on 16 December. But following their recent surge, they currently stand a tidy 23% above this low.
Despite owning Vodafone shares for just over two months, I’ve seen this stock’s volatility. But experience has taught me that with volatility comes opportunity. So would I buy more shares today?
Vodafone carries a lot of debt
On their fundamentals, Vodafone shares still look fairly attractive to me. They trade on a price-to-earnings ratio of 15.8, for an earnings yield of 6.3%. This is slightly more expensive than the wider FTSE 100.
However, the dividend yield is a mighty 7.6% a year — almost three percentage points higher than the FTSE 100’s cash yield. Alas, this is not fully covered, with only 84% of this payout met by trailing earnings. To me, an uncovered dividend suggest this cash return must eventually be cut.
Also, Vodafone’s net debt of €45.5bn (£40.5bn) greatly exceeds its current market value of £27.7bn. With interest rates on the up, that’s not exactly a great position to be in.
I’m still positive
Of course, Vodafone is a household name in the UK. It also operates in more than 30 other countries worldwide, including Germany, Italy and Spain.
In Europe, Vodafone is the largest mobile and fixed network operator. Worldwide, the group has over 300m mobile customers and 27m fixed-broadband customers.
What’s more, the latest half-year results show rising revenues, earnings and profits. And that’s before big inflation-linked price rises coming in April.
Summing up, while I’m fairly optimistic for Vodafone in 2023-24, my wife and I won’t add to our current shareholding just yet. And that’s because I can see deeper value elsewhere in the FTSE 100 right now!
