The Vodafone share price is down nearly 50%. Is it a sleeping giant or one to avoid?

Vodafone has lost 50% of its value in five years. Its share price looks cheap on paper. But this Fool still doesn’t plan on buying any shares.

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The last five years have been underwhelming for Vodafone (LSE: VOD). During that time, its share price has fallen by 48.8%.

On the flip side, the FTSE 100 has climbed 7.5%. Vodafone was once the largest company in Europe by market capitalisation. Today, it’s far from it.

But I love a bargain. And I love buying high-quality companies. So, could now be the time to consider buying the telecommunications stalwart?

A turnaround?

Vodafone stock has been on a steady decline in the last half-decade. Back then, I would have shelled out 134.6p for a share. At times, the stock reached as high as 162.2p. Today, a share costs 69.2p. Clearly, it’s crying out for a turnaround. But what could spark that?

Well, one factor is the streamlining process it’s undergoing. It has exited unprofitable regions such as Spain and Italy, selling off its businesses in these countries for €5bn and €8bn, respectively.

The company is also turning its attention to its German market, where it sees a large potential for growth. In its latest results, it said it expected an “acceleration of our underlying growth rates” in Germany this year.

Under CEO Margherita Della Valle, we’re starting to see signs of recovery for Vodafone. With some of the cash it has generated in recent times, the firm has announced a fresh buyback scheme. Shareholders will be pleased to see that.

Debt issues

Yet, while there’s no denying it has made decent progress with its plans, I see a couple of issues that could hamstring the business.

To begin, it has a thumping pile of debt on its balance sheet. It has €33.2bn in net debt. That’s around one and a half times its market capitalisation. The debt-to-equity ratio of around 80% is concerning.

There’s also its dividend yield to consider. Its 11.1% payout is one of its star features. That’s the highest on the FTSE 100. But there’s a caveat.

That will be cut in half from next year, meaning its yield will be closer to the 5.5% mark. That’s still above the Footsie average of 3.6%.

It makes sense and is a smart move. Its current payout ratio is over 200%. That means more is being paid in dividends than earnings. Reducing its dividend will free up cash for the firm. Nonetheless, I think the stock loses a good chunk of its appeal with a smaller yield.

Time to buy?

So, is it time for me to buy the stock? I don’t think so.

Today, its shares trade on 18.3 times earnings and 13.8 times forward earnings. That’s above the Footsie average. I’m okay with paying a premium for companies that I deem worthy. With Vodafone, I don’t see that.

Its debt is a very big concern of mine and as an investor who targets income, its falling yield doesn’t help.

Of course, I could be proved wrong, and Vodafone could stage a comeback. Either way, it’s one I’ll be avoiding for now. The Footsie is full of bargains. I’ll be snapping those up before I consider Vodafone.

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.

Charlie Keough 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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