Near a 3-year high, Vodafone may not look a cheap share, but is the value story just beginning?

Vodafone has risen a lot over 12 months, yet my analysis suggests there’s more value left in this supposedly not‑so‑cheap share than it might appear.

| 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.

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.

Person holding magnifying glass over important document, reading the small print

Image source: Getty Images

Vodafone (LSE: VOD) is trading at nearly a three-year high, which might not look a cheap share to some.

But because price and value differ in a stock, where it is trading now is irrelevant. What matters is how much value remains in the shares.

I believe there is a lot more than markets think, given the company’s recent transformation.

So, how cheap is it?

Where’s the growth coming from?

Earnings growth drives any firm’s share price over time. One risk for Vodafone is that it operates in some of the most price‑sensitive telecoms markets in Europe. Increasing competition in them may pressure the firm’s margins and limit pricing power.

That said, consensus analysts’ forecasts expect Vodafone’s earnings to grow around 46% a year to end-2028. This reflects a business moving from defensive restructuring into a phase of targeted investment and operational simplification.

A major pillar of that outlook is Vodafone Three, the merger of Vodafone UK and Three UK. Management believes this will unlock the scale needed for its nationwide 5G rollout, reduce duplicated network costs, and create a more efficient capital base. I think so too.

The firm is backing this new venture with £11bn invested over 10 years, including £1.3bn this year. It aims to create Europe’s most advanced 5G network and secure market leadership in the UK over EE and O2. 

Transition reflected in results?

Revenue increased 7.3% year on year to €19.609bn (£17.29bn) in H1 fiscal-year 2026. This was driven by strong service revenue growth and the consolidation of Three UK. Adjusted earnings before interest, taxes, depreciation, amortisation, and leases (EBITDAaL) rose 5.9% to €5.728bn.  

Given this momentum, Vodafone now expects to deliver at the top end of its 2026 guidance ranges. These include adjusted EBITDAaL of €11.3bn-€11.6bn and adjusted free cash flow of €2.4bn-€2.6bn.

In its earlier full-year 2025 results, service revenue grew 5.1% organically to €30.8bn. This highlighted to me that the firm could deliver growth even after years of stagnation.

Free cash flow was €2.5bn, beating guidance and demonstrating that the restructuring efforts were paying off. This alone can be a meaningful driver of future earnings growth.

How cheap do the shares look?

A discounted cash flow (DCF) analysis identifies where a stock should trade by projecting future cash flows and ‘discounting’ them back to today.

The more uncertain earnings forecasts are, the higher the return investors demand and the greater the discount applied.

Analysts’ DCF modelling varies — some more bullish than mine, others more cautious — depending on the variables used.

However, based on my DCF assumptions — including a 7.5% discount rate — Vodafone shares are 49% undervalued at their current £1.02 price.

On that basis, I calculate a ‘fair value’ of around £2.

This is crucial here, as stock prices tend to trade toward their fair value over time.

My investment view

I already hold BT shares, so buying another telecoms stock would unbalance the risk-reward profile of my portfolio.

However, with its major strategic reset, I expect Vodafone’s earnings to accelerate sharply over the next few years. And this should power its share price much higher, in my view.

Consequently, I believe the stock is well worth the consideration of other investors right now.

Simon Watkins has positions in Bt Group Plc. 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

UK money in a Jar on a background
Investing Articles

A SIPP seems to offer investors free money – is there a catch?

This writer doesn't believe in magic money trees, but does see the offer of tax relief within a SIPP as…

Read more »

Middle-aged white man wearing glasses, staring into space over the top of his laptop in a coffee shop
Investing Articles

Here’s what £10,000 invested in Greggs shares a year ago’s worth now

Given Greggs large shop network and simple business formula, could owning the shares help this writer build wealth? Maybe --…

Read more »

UK coloured flags waving above large crowd on a stadium sport match.
Investing Articles

Recent BT share price performance is jaw-dropping but can it continue?

Harvey Jones is stunned by how well the BT share price has weathered recent stock market volatility. Can the FTSE…

Read more »

A senior man using hiking poles, on a hike on a coastal path along the coastline of Cornwall.
Investing Articles

Is the stock market correction a once-in-a-decade chance to target a million-pound SIPP?

After recent volatility Harvey Jones can see plenty of value FTSE 100 stocks to help investors build wealth in a…

Read more »

Woman riding her old fashioned bicycle along the Beach Esplanade at Aberdeen, Scotland.
Investing Articles

How to target a £10k annual income from just one year’s £20,000 Stocks and Shares ISA allowance

Today is the start of the new financial year giving us all a a fresh Stocks and Shares ISA allowance.…

Read more »

Rolls-Royce's Pearl 10X engine series
Investing Articles

Rolls-Royce shares have gone nowhere this year. Is that a warning sign?

Rolls-Royce shares stand within spitting distance of where they began the year. Has the company's long run of strong share…

Read more »

Tesla building with tesla logo and two teslas in front
Investing Articles

£5,000 invested in Tesla stock on Christmas Eve is now worth…

Tesla stock is stuck in reverse at the moment. This year, it has fallen by around 15%. Is there potential…

Read more »

Close-up image depicting a woman in her 70s taking British bank notes from her colourful leather wallet.
Investing Articles

2 UK dividend stocks to consider buying in April

High-quality established businesses with reliable cash flows often make for great dividend stocks. Here are two for investors to take…

Read more »