Vodafone’s (LSE: VOD) share price is trading close to two-year highs following the release of its Q1 fiscal-year 2026 results.
These looked solid to me, with total revenue increasing 3.9% year on year to €9.4bn (£8.21bn) while service revenue rose 5.3% to €7.9bn.
Revenue is the total income received by the firm, including from the sale of phones and other devices. Service revenue relates specifically to income from the telecommunications services it provides to its customers.
The firm also stated that new entity VodafoneThree started operating on 1 June. This is the product of the December merger of Vodafone UK with Three UK. Vodafone holds 51% of the new operation, with the remainder held by CK Hutchison Group Telecom Holdings Limited.
The announcement of a new €2bn buyback programme also looks positive, as these tend to support share price gains.
Earnings growth outlook
Ultimately it is earnings growth that powers any firm’s share price and dividends over time. Earnings are what remain after expenses have been deducted from a firm’s revenue.
A risk to Vodafone is any significant mishandling of the integration of Three’s services with its own. This could cause disruption to customers and prompt them to switch service providers.
However, Q1 saw organic adjusted earnings before interest, taxes, depreciation, amortisation, and lease expenses (EBITDAaL) rise 4.9%.
Looking ahead, Vodafone reiterated its guidance for this full year, which includes group adjusted EBITDAaL of €11.3bn-€11.6bn (against 2025’s €10.932bn). It also features group-adjusted free cash flow of €2.4bn-€2.6bn (against 2025’s €2.5bn), which in itself can be a powerful engine for growth.
Analysts forecast that the firm’s earnings will grow by a whopping 49% each year to end fiscal-year 2028.
How does the share’s pricing look?
The first part of my share price assessment is to see how it compares on key valuation measures to its competitors. Price and value are not the same thing, and identifying the gap can result in big profits over time, in my experience.
On the price-to-sales ratio, Vodafone’s 0.6 value is bottom of its peer group, which averages 1.5. These firms comprise Orange at 0.9, BT at 1.1, Deutsche Telekom at 1.3, and Telenor at 2.7.
The second part of my assessment involves running a discounted cash flow (DCF) analysis. This pinpoints the price at which any firm’s stock should be trading, derived from business fundamentals.
The DCF for Vodafone shows its shares are 50% undervalued at their current price of 84p.
Therefore, their fair value is £1.68.
My investment view
Aged over 50 now, I am in the latter part of my investment cycle. As a result, I take fewer investment risks now than I did when I was younger. The reason is that the later one is in the cycle, the less time stocks have to recover from any shocks.
In Vodafone’s case, there is an additional risk – price volatility – that comes from its sub-£1 share price. In practical terms, this means that every 1p move in its share price represents 1.2% of the stock’s entire value!
That said, I think it is well worth the consideration of other investors whose portfolio it suits.
Specifically, I believe its strong earnings growth prospects should push its share price and dividends up significantly over time.
