Why I’m Thinking Of Buying Dirt Cheap Vodafone Group Plc

Here’s why I’m keen on the idea of adding Vodafone Group plc (LON: VOD) to my portfolio.

| 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.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

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.

Vodafone (LSE: VOD) (NASDAQ: VOD.US) is a company that I don’t currently hold in my portfolio, but is becoming ever more appealing to me. Indeed, I’ve changed my stance from negative to positive in recent weeks as I look beyond the short run and consider Vodafone’s long-term potential.

Of course, the main reason for the increasing appeal is quite straightforward: I think that Vodafone is dirt cheap at current levels.

I feel this way on both an absolute (standalone) basis and from a relative perspective (when comparing Vodafone’s valuation to the wider market and to its industry group).

Indeed, Vodafone currently trades on a price-to-earnings (P/E) ratio of just 13.5, which, when you consider the quality and diversity of the company, seems attractive.

Furthermore, when comparing this P/E ratio to the FTSE 100 and to the telecommunications industry group to which Vodafone belongs, it highlights the relative value of the company. The FTSE 100 currently trades on a P/E of 15, while the telecommunications industry group has a P/E of 14.2.

In my opinion, Vodafone should not be trading on such a large discount; either to the wider market or to its industry group, due to its diversity, strategy and stability of operations. Therefore, I’m optimistic that, over the medium to long term, Vodafone’s present valuation discount to its industry group and index will narrow, making shares good value at current price levels.

Of course, an attractive share price is not the only reason why I’m keen on Vodafone and am thinking of adding it to my portfolio.

I’m also impressed with the scale of reinvestment within the business that Vodafone is undertaking.

For instance, capital expenditure has been very generous in recent years, with it averaging £4.75 billion per annum over the last five years. This may reduce free cash flow in the short run but increases the size of the asset base (as well as its quality) and puts Vodafone in a strong position to take advantage of increased future growth rates across Europe and the developing world in particular.

Therefore, high capex is good for shareholders in the long run and I’m completely convinced that this is a big positive for investors’ in the business.

So, I’m impressed by Vodafone’s low valuation based on the P/E ratio, both on an absolute basis and relative to its industry group and index. I’m also encouraged by high levels of capex, which I think will be hugely beneficial to shareholders in the long run.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

> Peter does not own shares in Vodafone. The Motley Fool has recommended shares in Vodafone.

More on Investing Articles

Passive income text with pin graph chart on business table
Investing Articles

Yields of up to 7%! I’d consider boosting my income with these FTSE dividend stocks

The London market has some decent-looking dividend stocks right now, and I’m tempted by these two for growing income streams.

Read more »

Young mixed-race couple sat on the beach looking out over the sea
Investing Articles

I’d put £20K in an ISA now to target a £1,900 monthly second income in future!

Christopher Ruane shares why he thinks a long-term approach to investing and careful selection of shares could help him build…

Read more »

Mature couple at the beach
Investing Articles

6 stocks that Fools have been buying!

Our Foolish freelancers are putting their money where their mouths are and buying these stocks in recent weeks.

Read more »

Black woman using loudspeaker to be heard
Investing Articles

I was right about the Barclays share price! Here’s what I think happens next

Jon Smith explains why he still feels the Barclays share price is undervalued and flags up why updates on its…

Read more »

Investing Articles

Where I’d start investing £8,000 in April 2024

Writer Ben McPoland highlights two areas of the stock market that he would target if he were to start investing…

Read more »

View of Tower Bridge in Autumn
Investing Articles

Ahead of the ISA deadline, here are 3 FTSE 100 stocks I’d consider

Jon Smith notes down some FTSE 100 stocks in sectors ranging from property to retail that he thinks could offer…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

Why I think Rolls-Royce shares will pay a dividend in 2024

Stephen Wright thinks Rolls-Royce shares are about to pay a dividend again. But he isn’t convinced this is something investors…

Read more »

Investing Articles

1 of the best UK shares to consider buying in April

Higher gold prices and a falling share price have put this FTSE 250 stock on Stephen Wright's list of UK…

Read more »