Does Vodafone Group plc Provide Excellent Bang For Your Buck?

In this article I am looking at whether Vodafone (LSE: VOD) (NASDAQ: VOD.US) is a sterling stock pick for savvy value hunters.

Price to Earnings (P/E) Ratio

Enduring concerns over evaporating revenues in key European markets has put shares in telecoms giant Vodafone under the cosh Vodafonein recent times, the company having shed almost a fifth of its price since March’s all-time high of 252.3p per share.

Still, based on current earnings estimates the business could still be considered as punching above its weight. Vodafone currently sports P/E multiples of 26.1 and 25.1 for the years ending March 2015 and 2016 correspondingly, far above a forward average of 19.7 for the complete mobile telecommunications sector and flying outside a marker of 15 which is generally considered reasonable value.

Price to Earnings to Growth (PEG) Ratio

Vodafone’s bloated earnings multiple is prompted by expectations of a gargantuan 54% earnings slip for this year, following on from 2014’s heavy 13% decline. A slight 4% bounceback is predicted for 2016.

The company’s expected earnings decline this year results in an invalid PEG rating, while next year’s token rise results in a readout of 6.3, well above the value watermark of 1 or below.

Market to Book Ratio

After subtracting total liabilities from total assets, Vodafone carries a book value of £71.8bn. This figure creates a book value of £2.69 per share, which consequently generates a market to book value of just 0.8, well within the bargain basket of 1 or under.

Dividend Yield

While Vodafone may not be stepping up to the plate on an earnings basis, the mobile operator is still a big player on the dividend front. Indeed, the firm’s formidable cash pile has enabled it to continue growing the annual payouts in spite of an erratic earnings performance.

City analysts expect this to continue this year, with last year’s full-year dividend of 11p per share predicted to rise to 11.4p in fiscal 2015. However, the number crunchers are torn over what persistent earnings pressure is likely to mean for next year, and consensus points to a slight cut to 11.3p.

Still, these figures create a chunky 5.5% yield through to the end of 2016, easily outstripping the FTSE 100 forward average of 3.2%.

A Solid Long-Term Growth Bet

On the face of it Vodafone hardly offers terrific value for money, at least during the medium term, given the metrics discussed above. Investors should be concerned by enduring revenues concerns in Europe, a situation which could have a negative effect on dividend growth in coming years, even if payout projections through to the end of next year remain strong and should be supported by meaty cash flows.

But I believe that Vodafone is an attractive bet for long term growth. With sizeable investment underpinning expanding exposure to developing regions, as well as its presence in multi-services entertainment markets through its Kabel Deutschland and Ono purchases, I expect growth to accelerate strongly in coming years. I also expect solid investment via its Project Spring capex scheme to deliver better returns from its key European marketplace.

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Royston does not own shares in Vodafone.