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.

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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.

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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.

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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.

Like buying £1 for 51p

This seems ridiculous, but we almost never see shares looking this cheap. Yet this recent ‘Best Buy Now’ has a price/book ratio of 0.51. In plain English, this means that investors effectively get in on a business that holds £1 of assets for every 51p they invest!

Of course, this is the stock market where money is always at risk — these valuations can change and there are no guarantees. But some risks are a LOT more interesting than others, and at The Motley Fool we believe this company is amongst them.

What’s more, it currently boasts a stellar dividend yield of around 8.5%, and right now it’s possible for investors to jump aboard at near-historic lows. Want to get the name for yourself?

See the full investment case

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