Here’s why I think the Vodafone share price could double in five years

The Vodafone share price has lost half its value in the past five years. I think it might be on the road to getting it all back now.

| More on:
Investor looking at stock graph on a tablet with their finger hovering over the Buy button

Image source: Getty Images

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

The Vodafone (LSE: VOD) share price has had a tough time, for sure.

In the past five years, the stock is down 50%, including a steady slide that started in early 2022. And I wonder if it can reverse. Can it get back to where it was five years ago? And if so, how soon?

It would mean a doubling of today’s share price. And I think it could happen.

Refocus

Part of the problem is that Vodafone has needed a bit of a refocus for years. Most observers saw that.

But the management seemed oblivious, and just kept handing out huge dividends that the company couldn’t really afford.

But current CEO Margherita Della Valle is different. She quickly made it clear that the company wasn’t doing well enough, and the long-awaited big shake up was coming.

The latest step has been the sale of Vodafone Italy, which raised €8bn, of which €4bn is being returned via buybacks.

Combined with the firm’s Spanish disposal, Vodafone has raised a total of €12bn that can help towards its new aim to target growing telecoms markets.

Dividend

The dividend will be slashed in half starting 2025 too. And I think that’s a good thing. It would still mean a yield of 5.5% on today’s share price. And it should hopefully be a lot more sustainable.

Forecasts right now are probably of variable value. Most of the ones I see haven’t even factored in the 50% dividend cut for 2025 yet.

But, they have so far responded positively to Vodafone’s turnaround plans.

After an expected tough 2024, the City sees a 30% rise in earnings per share (EPS) in 2025, and about 15% for 2026.

Valuation falling

That would drop the price-to-earnings (P/E) ratio to 10 by 2026. With enhanced earnings growth prospects, I’d say that already looks cheap.

If EPS should continue to grow by even 5% per year after that, we could see a P/E of 8.5 by then. And I can see a renewed Vodafone growing its earnings faster than that.

Even a doubling of the share price in the next five years could still put the P/E at around 17. And if we’ve seen a few years of good growth by then, I think that could look cheap.

Caution

The outlook for the next few years is still far from certain, perhaps more than most. And my guesses at earnings gains are just that, guesses.

I’m also wary because of another company that’s also been through a much-needed revamp. I’m talking of Aviva, which had grown large and sprawling without clear focus. On that, it seems a lot like Vodafone.

But with that well under way, the Aviva share price still hasn’t done a lot. And I think sentiment might still be against Vodafone for some time yet.

On balance, I wouldn’t buy Vodafone in the hope of the share price doubling. But I might buy for sustainable 5.5% dividends. And any share price gains would be a nice bonus.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Alan Oscroft has positions in Aviva Plc. The Motley Fool UK has recommended Vodafone Group Public. 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.

More on Investing Articles

Young Black man sat in front of laptop while wearing headphones
Investing Articles

Investing just £10 a day in UK stocks could bag me a passive income stream of £267 a week!

This Fool explains how investing in UK stocks rather than buying a couple of takeaway coffees a day could help…

Read more »

Investing Articles

A cheap stock to consider buying as the FTSE 100 hits all-time highs

Roland Head explains why the FTSE 100 probably isn’t expensive and highlights a cheap dividend share to consider buying today.

Read more »

Investing Articles

If I were retiring tomorrow, I’d snap up these 3 passive income stocks!

Our writer was recently asked which passive income stocks she’d be happy to buy if she were to retire tomorrow.…

Read more »

Investing Articles

As the FTSE 100 hits an all-time high, are the days of cheap shares coming to an end?

The signs suggest that confidence and optimism are finally getting the FTSE 100 back on track, as the index hits…

Read more »

Investing Articles

Which FTSE 100 stocks could benefit after the UK’s premier index reaches all-time highs?

As the FTSE 100 hit all-time highs yesterday, our writer details which stocks could be primed to climb upwards.

Read more »

Investing Articles

Down massively in 2024 so far, is there worse to come for Tesla stock?

Tesla stock has been been stuck in reverse gear. Will the latest earnings announcement see the share price continue to…

Read more »

Young Caucasian woman with pink her studying from her laptop screen
Dividend Shares

These 2 dividend stocks are getting way too cheap

Jon Smith looks at different financial metrics to prove that some dividend stocks are undervalued at the moment and could…

Read more »

Investing Articles

Is the JD Sports share price set to explode?

Christopher Ruane considers why the JD Sports share price has done little over the past five years, even though sales…

Read more »