3 reasons why Vodafone shares look dirt-cheap! Is it now time to buy?

Could Vodafone shares be considered the FTSE 100’s greatest bargain? After today’s results, Royston Wild thinks the answer might be yes.

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Vodafone Group (LSE:VOD) shares are now trading at their most expensive since late 2023. A positive reaction to full-year financials has swept the telecoms titan 3.4% higher on Tuesday (14 May), to 72.3p per share.

But I believe the FTSE 100 firm still looks dirt cheap at today’s prices. Here are three reasons why.

Earnings

For this financial year (to March 2025), Vodafone trades on a forward price-to-earnings (P/E) ratio of 9.3 times.

This reading — which is built on City expectations that earnings will rise 17% year on year — is below the Footsie average of 10.5 times.

Vodafone’s share price also commands a price-to-earnings growth (PEG) ratio of 0.6. Any sub-1 reading indicates that a share is undervalued relative to its growth prospects.

Dividends

Vodafone grabbed the headlines earlier this year when it announced plans to rebase the dividend. This came as no surprise to many: talk of a reduction had long been circulating due to the firm’s high debts.

Yet based on City forecasts, the company’s dividend yield for financial 2025 still stands at 7.9%.

This is more than double the 3.5% FTSE 100 average.

Assets

Finally, Vodafone’s shares look dirt cheap relative to the value of the firm’s assets. This can be evaluated using the price-to-book (P/B) ratio.

Like the PEG ratio, a reading below 1 indicates that a stock is undervalued. Today, Vodafone’s multiple sits at a rock-bottom 0.4.

Why is Vodafone so cheap?

The cheapness of this particular Footsie stock is down to several reasons.

Firstly, the size of Vodafone’s debt pile continues to spook investors despite the company’s decision to slice dividends. Net debt was €33.3bn at the end of March, roughly unchanged year on year.

Also, Telecoms is a very capital-intensive business. And so fears that high debt levels will endure — a scenario that could drag on the firm’s growth plans and dividend policy — remain a problem.

Finally, worries over Vodafone’s troubles in Germany are also dampening its share price. Changes to laws concerning services bundling have smacked the company’s performance in its single largest market.

Is now the time to buy?

However, Tuesday’s full-year update underline the solid progress Vodafone is making to turn things around.

After much waiting, sales growth finally returned to each of the company’s markets in the March quarter. This, in turn, pushed organic service revenues for the full financial year 6.3% higher. And, encouragingly, sales growth in Germany accelerated to 0.6% during quarter four.

Sales at Vodafone Business, a division earmarked for big things looking ahead, also continues to speed up, increasing 5.4% in the final quarter.

The company’s cost-reduction drive — which includes the cutting of 11,000 roles over three years — is also progressing in a boost to profits and cash flows.

So should investors consider buying Vodafone shares, then? I think the answer is yes. Following the sale of its underperforming Spanish and Italian units, and with steps to reverse its fortunes elsewhere paying off, I think the Footsie firm’s share price could continue heading higher.

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.

Royston Wild has no position in any of the shares mentioned. 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.

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