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:

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

Passive and Active: text from letters of the wooden alphabet on a green chalk board
Investing Articles

As global markets dip, British passive income stocks offer higher yields at cheaper prices

Mark Hartley takes a look at some higher-yielding FTSE stocks that have taken a hard hit in the past month.…

Read more »

Mindful young woman breathing out with closed eyes, calming down in stressful situation, working on computer in modern kitchen.
Investing Articles

2 ‘overpriced’ FTSE 100 shares I’ve got my eye on if the stock market crashes

Never one to miss an opportunity, our writer is putting cash aside to buy quality FTSE 100 stocks in the…

Read more »

Young mixed-race woman looking out of the window with a look of consternation on her face
Investing Articles

With stock market risks emerging, is now the time to consider the 60/40 portfolio?

The stock market could be in for a period of turbulence. Here’s a simple strategy that can help long-term investors…

Read more »

Bus waiting in front of the London Stock Exchange on a sunny day.
Investing Articles

Is a stock market crash coming? It’s not too late to get ready!

Christopher Ruane sees reasons to fear a coming stock market crash. Rather than tying to time it, he's hoping to…

Read more »

Investing Articles

Down 4% in 2026, is now the time to consider buying Nvidia shares

Has Nvidia become too big to keep growing? Or is the stock’s decline this year a chance to think about…

Read more »

Investing Articles

Is the party finally over for Rolls-Royce shares?

Rolls-Royce shares have made investors rich but momentum is slowing and the Iran conflict isn't helping. How worried should we…

Read more »

Asian man looking concerned while studying paperwork at his desk in an office
Investing Articles

7.8% dividend yield! A dirt-cheap UK income share to buy today?

I’m on the hunt for lucrative passive income opportunities, and this under-the-radar FTSE stock currently offers a whopping 7.8% dividend…

Read more »

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

3 passive income stocks tipped to soar 41% (or more) by 2027

One of these shares offering passive income is trading at a massive 79% discount to where City analysts think it…

Read more »