Are Vodafone Group plc, Sky PLC And Talktalk Telecom Group PLC Set To Beat The FTSE 100 This Year?

The quad play space is becoming increasingly competitive, with a number of companies diversifying their product range to include broadband, landline, pay-TV and mobile. The key reason for this is the major cross-selling opportunities that could offer a relatively straightforward path to higher future profitability.

One company set to launch its own mobile offering this year is Sky (LSE: SKY). It has been performing well recently and has been able to add an impressive number of new customers to its current offerings, while being strong on retention too. Looking ahead, Sky is forecast to grow its bottom line by 11% in the current year and this puts it on a price-to-earnings-growth (PEG) ratio of 1.5.

Although Sky’s current valuation indicates that its shares could rise in future, the company’s expected performance for the next financial year is potential cause for concern. That’s because Sky is due to post a fall in net profit of 6% next year and the market seems to be in the process of pricing-in such a fall, since Sky’s share price has underperformed the FTSE 100 by 10% year-to-date. As such, it may struggle to reverse this trend over the medium term, which makes Sky less appealing compared to its sector peers.


Also expanding its product range has been Vodafone (LSE: VOD). It now has a broadband offering in the UK and has diversified its business in Europe with the acquisitions of Kabel Deutschland and Spain’s Ono. This should help to provide Vodafone with a more diversified income stream and may mean a more stable and resilient dividend outlook for the company’s investors.

Clearly, the way Vodafone is viewed by investors has changed over the years. Rewind to its initial listing and the market viewed Vodafone as a rapidly expanding growth play which was set to deliver stunning capital growth. However, as growth in Europe has stalled in recent years, it has been viewed almost like a quasi-utility with a high yield. However, with Vodafone forecast to increase its bottom line by 21% this year and by a further 29% next year, its PEG ratio of 1 indicates that it could be priced as a growth stock over the medium term and in doing so outperform the wider index.

Moving on from misery?

One stock that’s already a quad play operator is Talktalk (LSE: TALK). It has endured a miserable period, with the effects of the hacking scandal likely to act as a brake on new customer wins at a crucial time for the wider industry. And with customer retention likely to have fallen, Talktalk’s bottom line could come under pressure over the medium term.

Despite this, it seems to be a strong buy for the long term. That’s at least partly because it trades on a PEG ratio of just 0.5, which indicates that it offers a sufficiently wide margin of safety to merit purchase. Certainly, it’s a riskier option than Sky or Vodafone due to its challenges of the last year, but it also could offer the highest potential rewards too.

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Peter Stephens owns shares of TalkTalk Telecom Group plc and Vodafone. The Motley Fool UK has recommended Sky. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.