Vodafone (LSE: VOD) shares have dropped 9% from their 18 February one-year traded high of £1.20.
This does not necessarily mean that they are undervalued now, but they may be. That all depends on the strength of the underlying fundamentals of the business.
So, how do these look now, and how high can they drive the share price from here?
Business momentum building?
Earnings (‘profits’) growth is the engine for share price and dividend gains in any stock over time. A risk to Vodafone is the high degree of competition in the sector, which may compress its margins. And this pressure is only compounded by the group’s substantial debt. After all, building out telecommunications infrastructure isn’t cheap.
However, despite this, analysts’ consensus forecasts are that its earnings will grow by a stunning average of 55% a year to end-2028.
Vodafone’s latest major results (H1 fiscal year 2026) point to a business gaining significant operational and financial traction. Adjusted earnings before interest, taxes, depreciation, amortisation, and leases (EBITDAaL) increased 5.9% year on year to €5.7bn (£4.9bn). This was supported by broad‑based service‑revenue growth and early benefits from the integration of Three UK.
Its subsequent Q3 numbers, released on 5 February 2026, showed similar momentum, with group service revenue rising 7.3% to €8.5bn. Germany continued to improve, supported by higher wholesale revenue, while Africa saw 13.5% service growth. Overall, group adjusted EBITDAaL increased 2.3% to €2.8bn.
Vodafone added that it remains 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 undervalued?
In asset terms, price is just a function of whatever the market is willing to pay at any given time. But value reflects the fundamentals of the underlying business.
The key to long-term investors’ profits over time lies in recognising this gap and exploiting it. This is because asset prices (including shares) tend to trade to their ‘fair value’ over the long run.
The discounted cash flow (DCF) method identifies a share’s fair value by projecting a firm’s future cash flows and then discounting them back to today.
DCF modelling results vary according to the various inputs used — some more bullish than mine, others more bearish. However, based on my DCF assumptions — including a 7.5% discount rate — Vodafone shares are 48% undervalued at their current £1.09 price.
This implies a fair value for the stock of around £2.10 — nearly double where the shares trade today.
Given the tendency for prices to converge with value over time, this suggests a potentially superb buying opportunity to consider today if those DCF assumptions prove correct.
My investment view
I already have another telecoms sector stock — BT — and adding another would unsettle the risk-reward balance of my portfolio.
However, for investors without this problem, I think the stock is worthy of serious attention. It is deeply undervalued at a time of strong operational momentum.
This creates a compelling asymmetry: limited downward potential versus meaningful upward potential, if the turnaround continues.
And with the shares trading at barely half my estimate of fair value, I think patient long‑term investors may find this a rare opportunity hiding in plain sight.
