Just because Vodafone’s (LSE: VOD) share price is at a three-year high does not mean it has no value left. This is because price and value are not the same thing in stocks.
In fact, the latest numbers suggest there could still be a substantial gap between the market price and the company’s underlying worth. This is important to the profits of long-term investors, as assets tend to trade to their ‘fair value’ over time.
So how big does this crucial price-to-value gap look in Vodafone’s case?
Earnings growth
Earnings (profits) growth is the powerhouse of any company’s share price over the long run.
A risk to Vodafone here is the intense competition in the telecoms sector that could squeeze its margins. Even so, consensus analysts’ forecasts are that Vodafone’s earnings will grow by a standout 45.9% average a year to end-2028.
Its fiscal-year 2025 results saw service revenue grow 5.1% organically year on year to €30.8bn (£26.9bn). Adjusted earnings before interest, taxes, depreciation, amortisation, and leases (EBITDAaL) climbed to €11bn, improving margins to 30%.
Crucially, free cash flow was €2.5bn, beating guidance and highlighting that ongoing restructuring efforts are paying off. These involve simplifying the group, improving profitability, reducing debt, and refocusing on markets where it can grow.
In its Q3 2026 results released on 5 February, it said it is on track to deliver at the upper end of our guidance range for both profit and cash flow. For the former, the range is €11.3bn-€11.6bn, while for the latter it is €2.4bn-€2.6bn. It also announced a new €500m share buyback, which tends to support share price gains.
Are the shares cheap to peers?
Despite its recent price rise, Vodafone is still at the bottom of its competitor group on the key price-to-sales ratio. It trades at just 0.8 compared to the 1.5 average of these peers.
These comprise BT at 1, Orange at 1.1, Deutsche Telekom at 1.2, and Telenor at 2.7. So Vodafone looks very cheap on this basis.
The same is true of its price-to-book ratio of 0.6 — again bottom of its peer group, which averages 2.2.
How much of a bargain is it?
To nail down exactly what the stock’s true worth is, I ran a discounted cash flow (DCF) analysis. This uses consensus analysts’ earnings growth forecasts to project long-term cash flows that are discounted back to today.
Let us assume that these forecasts are right — although they are not set in stone, and other DCF analyses may use different inputs that may produce different results. My modelling — using a discount rate of 7.4% — estimates Vodafone’s ‘fair value’ could secretly be close to £2.02 per share. That is almost double where the stock trades today.
This is important, as asset prices typically gravitate towards their fair value in the long run. So this suggests a potentially terrific buying opportunity to consider today if those analyst forecasts prove accurate.
My investment view
I would consider buying Vodafone if I did not already hold BT. Adding another telecoms stock would skew my portfolio’s risk-reward balance.
But for investors without that issue, Vodafone’s exceptional earnings‑growth outlook and large valuation discount make the stock well worth considering, in my view.
