And a 55% share price crash over the last five years means the company is trading on a price to earnings (P/E) ratio of less than 4.2.
My colleague from The Motley Fool, James Beard, wrote recently on Vodafone’s rivals. He said the two largest telecoms providers in Europe — Deutsche Telekom and Swisscom — trade on P/E ratios of 12 and 14.9.
Butt buying beaten-down companies at bargain prices and compounding the gains over many years is a proven investing strategy. So is now the perfect time to buy Vodafone?
It has seen a huge uptick in share trading in 2024. It’s possible investors see its 60p-65p mark as a good buy-in point.
The company has produced consistent sales of between £35bn and £40bn a year between 2018 and today.
But profits? That’s a different story.
In 2018 it made £2bn. Then a £6.8bn loss in 2019. Followed by a £785m loss in 2020, a £59m profit in 2020 and, get this, an £11bn profit in 2021.
Projections suggest around £1.7bn of profit next year, and £2bn by 2025.
Bad news bears
But a slew of negative headlines had turned some investors away from the company. These include:
- A monopoly probe into its merger with mobile phone provider Three
- The Emirates-backed stake in its shares posing a national security risk
- Spending £800m over the last two decades on consultants
And a heavy debt load now approaching £42bn means the market has been downbeat on Vodafone.
This could lead the FTSE 100 company to cut its dividend from 8.9p per share to 6.9p by 2025. That’s according to leading City analysts.
And the company has been engaged in selling off the assets it picked up during its empire-building phase. This inconsistent strategy smacks of poor management.
Could it get kicked out of the FTSE 100? That would be disastrous for Vodafone and its shareholders.
At around 63p, Vodafone’s market cap is £17bn. Only the highest-valued 100 companies in the UK can be in the FTSE 100. If they lose market value, the businesses at the lower end are pushed out of the index.
In general when companies are promoted to the FTSE 100 they see an uplift in prices. The main reason is that a lot of large funds have to buy the newly-added shares.
And the opposite — heavy selling — tends to happen when stocks exit the FTSE 100.
To approach the lower end of the list, around £3.5bn, Vodafone’s share price would have to fall to 13p.
From today’s share price, that would be another drop of around 80%. It’s unlikely, but not impossible.
Will I buy?
Even at bargain prices, I won’t be touching Vodafone just yet. There’s just too much risk sloshing around.
And I need a little more certainty to ensure I’d be buying a company that’s actually on the verge of a turnaround.