At 76p, is this FTSE 100 stock one of the best bargains right now?

Jon Smith explains why a FTSE 100 giant’s struggled in recent years, but flags up why a recent pivot in strategy could make it an attractive buy.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

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 been losing ground over the past few years. In the last five years, it’s down 51%. Even though the FTSE 100 veteran’s up a modest 4% in the last year, it feels more like treading water rather than an explosive recovery. Yet with some people calling this a bargain right now, I thought it worthwhile to take a closer look.

Spiralling down

Let’s run through some of the problems Vodafone’s endured that have pushed the share price down to current levels. One large issue’s been the amount of debt.

The business took on more debt during the pandemic, but has struggled to meaningfully pay it down. For example, the 2024 annual report showed net debt at €33.2bn, the same level it was a year ago. Given that the firm generated a profit before tax of €1.6bn, it would be good to use some retained earnings to pay down the debt. Yet even if it used all the profit from last year to do so, it still doesn’t make a huge dent into the debt pile.

Should you invest £1,000 in Rolls-Royce right now?

When investing expert Mark Rogers has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets. And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if Rolls-Royce made the list?

See the 6 stocks

Another issue that has hampered the stock is that Vodafone’s potentially too large and therefore inefficient. It has tried to solve this issue by recently exiting some markets, such as Italy and Spain. I see this as a good move for a more streamlined future. Yet in terms of understanding how the stock reached the current level, it’s definitely been a factor.

Created with Highcharts 11.4.3Vodafone Group Public PriceZoom1M3M6MYTD1Y5Y10YALLwww.fool.co.uk

Indications of value

One sign the stock could be a bargain right now relates to the €500bn share buyback announced last week. Typically, it makes sense for a company to buy back the stock when the price is cheap. After all, buying when the share price is at all-time highs would be a costly way to use company funds. So although it’s not a concrete reason, the fact that Vodafone are launching a large buyback as a way of distributing funds back to shareholders right now is quite telling.

I feel the stock looks undervalued when I consider the benefits in coming years of what a more streamlined firm could look like. In selling off assets from low growth areas, it not only banks cash but can then focus more attention on markets where growth’s high.

We’ve already seen this with the €5bn sale late last year of the Spanish operations. With the latest quarterly results showing revenue in Turkey accelerating, pivoting from one area to another could be a great strategy move. Over time, group revenue should increase while costs shrink, helping to lift the share price.

One to watch

Although I feel there are more obvious bargains in the stock market right now, I do like the look of Vodafone shares at the moment. I’m seriously thinking about adding some to my portfolio.

Of course, there are plenty of other passive income opportunities to explore. And these may be even more lucrative:

We think earning passive income has never been easier

Do you like the idea of dividend income?

The prospect of investing in a company just once, then sitting back and watching as it potentially pays a dividend out over and over?

If you’re excited by the thought of regular passive income payments, as well as the potential for significant growth on your initial investment…

Then we think you’ll want to see this report inside Motley Fool Share Advisor — ‘5 Essential Stocks For Passive Income Seekers’.

What’s more, today we’re giving away one of these stock picks, absolutely free!

Get your free passive income stock pick

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.

Jon Smith 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.

More on Investing For Beginners

Affectionate Asian senior mother and daughter using smartphone together at home, smiling joyfully
Investing Articles

With Cash ISA changes coming, could now be the time to consider buying shares?

Changes to the Cash ISA could lead to greater investment in the stock market. This could be a good thing…

Read more »

Young black woman using a mobile phone in a transport facility
Investing Articles

3 FTSE 100 safe haven stocks to consider as trade wars bite

I'm confident in the long-term outlook for the FTSE index of stocks. But these blue chips may protect investors from…

Read more »

Investing Articles

2 cheap FTSE 100 and FTSE 250 shares to consider for an ISA before 5 April!

These FTSE 100 and FTSE 250 shares are on sale today! Here's why long-term Stocks and Shares ISA investors should…

Read more »

Investing Articles

How I’m building a new second income for 2035

Millions of us invest for a second income. Here are the steps Dr James Fox is taking in order to…

Read more »

The flag of the United States of America flying in front of the Capitol building
Investing For Beginners

Why FTSE 100 investors should pay attention to ‘Liberation Day’

Jon Smith explains why the upcoming tariff announcement from across the pond could have an impact on the FTSE 100,…

Read more »

Investing Articles

3 top FTSE 100 shares to consider for a new ISA

The FTSE 100 is packed with top-notch companies that can form the building blocks of a quality Stocks and Shares…

Read more »

Investing Articles

Is buying gold stocks the best way to capitalise on bullion’s bull run?

Forget about gold bars, coins, and funds for a moment. Here's why considering gold stocks could be the best option…

Read more »

Investing For Beginners

Want to invest in an ISA but scared of a stock market crash? Consider this

A stock market crash or dip can be a great time to buy FTSE 100 stocks at reduced prices. Harvey…

Read more »