The Vodafone share price is down by over 50% in 5 years. What could the next year have in store?

The Vodafone share price has posted a terrible performance in recent years. But could a recovery be on the cards? This Fool explores.

| More on:

Image source: Vodafone Group plc

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.

It goes without saying that the last five years have been extremely disappointing for Vodafone (LSE: VOD) shareholders. During that time, its share price has fallen by 51.2%.

But after underperforming in recent times, could we see the stock stage a recovery? With that in mind, what could the next 12 months have in store for Vodafone? Let’s take a closer look.

Broker forecasts

Well, one way to assess what the stock may do is by looking at broker forecasts. It’s worth noting these can be wrong. Nonetheless, I think they offer a good guide.

Eleven analysts offering a 12-month target price have an average price of 87.2p. That represents an 11.9% premium from its current price. Of those, the highest target is 140.4p. The lowest is 65p.

What’s more, of the 14 analysts giving stock ratings, six think the stock’s a Strong Buy, six Hold, one a Sell, and one a Strong Sell.

Valuation

Overall, analysts seem fairly bullish on the stock’s potential performance over the next year. With that, I want to take a closer look at why that could be.

One way to do this is to look at its valuation and the key price-to-earnings (P/E) ratio. As seen below, Vodafone trades on a P/E of 21.4. In my opinion, that looks a tad expensive. The FTSE 100 average is 11.


Created with TradingView

However, looking ahead makes for a better reading. As the chart below highlights, its forward P/E is just 9.9.


Created with TradingView

The business itself

But forecasts and fundamentals only paint part of the picture. How’s the business shaping up moving forward?

Under the leadership of Margherita Della Valle, who was appointed CEO in January 2023, the firm’s been on a streamlining mission.

As part of this, Vodafone has exited unprofitable regions such as Spain and Italy, offloading its businesses for €5bn and €8bn respectively. In tandem with that, the firm’s placing more emphasis on growing markets, such as in Germany.

Moves like this are part of Vodafone’s wider plan to boost its return on capital employed (ROCE). For the year ended 31 March, its post-tax ROCE stood at just 4.5%.

Furthermore, the firm’s outlined its intention to slash its dividend in half from next year. Its current payout of 9.8%’s unsustainable. By reducing it, the firm will save €1bn. That sounds like a smart move.

But for me, there’s one snagging issue. Vodafone has a €33.2bn pile of debt sitting on its balance sheet. That’s a massive amount and I think it could hinder growth moving forward. What’s more, that’s without considering that higher interest rates will make it more expensive to service.

What’s next?

Overall, while analysts believe that Vodafone has the potential to rise over the next year, I won’t be buying any shares right now.

The stock’s too expensive for my liking right now. And, more concerningly, I see its debt as a big issue.

As an investor who focuses on income, its falling yield also reduces its appeal. For now, Vodafone will be staying on my watchlist.

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.

More on Investing Articles

Investing Articles

I’ve just made a huge decision about my Scottish Mortgage shares!

Harvey Jones has done pretty well after buying Scottish Mortgage shares a year ago but the closer he examines the…

Read more »

Investing Articles

These top passive income stocks all go ex-dividend in October!

Paul Summers has been running the rule on some brilliant passive income stocks, all of which have ex-dividend deadlines coming…

Read more »

Warren Buffett at a Berkshire Hathaway AGM
Investing For Beginners

2 Warren Buffett-type stocks in the UK’s FTSE 100 index worth a look today

Warren Buffett likes to invest in high-quality companies. He also likes to buy when valuations are attractive and he can…

Read more »

artificial intelligence investing algorithms
Growth Shares

The next industrial revolution has begun. Here are 3 growth stocks at its heart

Edward Sheldon believes these three growth stocks will do well as the AI industry grows and the world becomes more…

Read more »

Investing Articles

Given the current economic climate, is there value to be found in UK penny stocks?

Our writer evaluates the prospects of two promising penny stocks on the London Stock Exchange. They each have a compelling…

Read more »

Investing Articles

With yields at 9%+, I expect even more from these FTSE 100 dividend stocks

I'd thought FTSE 100 yields might be declining by now, as the stock market starts to gain. Can these big…

Read more »

A young black man makes the symbol of a peace sign with two fingers
Investing Articles

2 risky shares for investors to consider buying

It’s important to consider what could go wrong when working out which shares to buy. But sometimes the potential rewards…

Read more »

Investing Articles

After crashing 63% can the Burberry share price ever recover?

Harvey Jones thought he was clever when he bought Burberry shares after a recent profit warning, but instead he's taking…

Read more »