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Vodafone Group plc vs TalkTalk Telecom Group plc: which is the superior stock after Q3 results?

Telecoms giant Vodafone Group’s (LSE: VOD) quarterly results failed to impress on Thursday morning, and the stock was recently dealing 1% lower from last night’s close.

The company said organic service revenues rose 1.7% between October and December, to €12.3bn, numbers that indicate a recent slowdown in customer demand. By comparison, organic service revenues advanced 2.3% during the prior six months.

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But it cheerily noted that strong performances in Germany, Spain and Italy helped organic service revenues in the region rise 0.7%, up from 0.6% during April-September.

And it also continued to enjoy decent sales growth in the Africa, Middle East and Asia Pacific (or AMAP) territory, with organic service sales here expanding 3.9% in Q3.

Having said that, AMAP growth in the period slowed somewhat from the 7.4% rise of the previous six months of the fiscal year.

Vodafone saw organic service revenues in the red-hot Indian market falling 4% due to increased competition. And in the UK, it dipped 3.2% as pressure from rivals at its Enterprise business division increased.

As a result it now expects organic earnings before interest, taxation, depreciation and amortisation (EBIDTA) growth for the full year to come at the lower end of expectations, at 3%-6%.

Pricey but pukka

Some would argue Vodafone remains a tad too expensive given signs of sales stress more recently.

Impressive earning advances of 14% and 21% in the periods to Match 2017 and 2018 may be pencilled-in by City analysts. But subsequent P/E ratios of 33.4 times and 27.6 times fly above the FTSE 100 forward average of 15 times.

However, I believe Vodafone has what it takes to overcome the recent challenges created by its rivals and keep growth running at an electric rate, making it worthy of such heady valuations.

In particular, I believe the company’s massive financial clout is giving it significant firepower to build its global footprint and improve infrastructure, and thus deliver stunning sales growth well into the future.

Indeed, the business said it plans to expand its 4G services across India to head off rising competition there. And it’s also in discussions to merge its operations in the country with those of Idea Cellular to create a regional powerhouse.

Not-so-happy talk

I’m not so optimistic over the fortunes of TalkTalk (LSE: TALK), however. It advised in its own quarterly update this week that group revenues had slipped 5% between October and December, to £435m, reflecting the introduction of low price plans during the autumn as well as the impact of re-contracting. However, the multi-services provider expects this to be a short-term issue as its bid to double-down on the ‘value’ end of the market pays off.

Investors will be hoping the appointment of Sir Charles Dunstone as executive chairman from May, marking the end of chief executive Dido Harding’s tenure, will be a new beginning and put to bed recent revenues struggles as well as the fallout from the 2015 hacking scandal.

However, with big players like BT and Sky continuing their assault on the low-price end of the market, hopes of a significant turnaround in TalkTalk’s top line are in danger of falling flat. And the company’s growing focus on the value segment may also struggle to generate strong earnings growth in future years.

I reckon the firm remains an unattractive long-term growth selection, even though predicted bottom-line rises of 55% and 10% result in conventionally-low P/E ratios of 11.5 times and 10.2 times.

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Royston Wild has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

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