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Are you tempted by the 20% fall in the Vodafone share price? Here’s what you need to know

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The performance of Vodafone (LSE: VOD) over the last year has been relatively disappointing. The telecoms company’s shares have fallen by 20% during the period, with investors becoming increasingly concerned about its growth prospects and financial standing.

Looking ahead, though, the company is expected to produce double-digit earnings growth in the next financial year. Therefore, it could be worth buying for the long term alongside another growth share which reported positive results on Wednesday.

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Improving outlook

The interim results released by healthcare-focused advisory group, Cello Health (LSE: CLL), on Wednesday showed that the company continues to make encouraging progress with its strategy. Headline profit before tax increased by 9.3% to £5.1m versus the first half of the previous year, with the company continuing to deliver on its growth strategy.

During the period, the company was able to increase the profile of its Cello Health brand. It is in the process of building its early stage asset development advisory platform for biotech clients, while also growing its core later stage and post-launch franchise with pharmaceutical clients. Its revenue visibility continues to be underpinned by the depth and breadth of client relationships which it holds, while a focus on increasing the size of the global service platform could improve its long-term financial outlook.

With the company expected to report earnings growth of 9% in the current year, followed by further growth of 7% next year, it appears to have a bright future. Although its price-to-earnings (P/E) ratio of 17 may not be low compared to other small-cap shares, its risk/reward ratio seems to be attractive.

Growth potential

While the Vodafone share price may have fallen in recent months, the company appears to offer an improving outlook. It is expected to post a rise in earnings of 15% in the next financial year. With its shares trading on a price-to-earnings growth (PEG) ratio of 1.2, it seems to offer excellent value for money compared to many of its FTSE 100 peers.

The company’s decision to form partnerships in India and Australia with existing operators could provide it with additional growth catalysts. They could create dominant companies in their respective markets, which could lead to enhanced customer service, economies of scale and higher profitability over the long run. And with the company having a diverse range of operations across the globe, it could benefit from the resilient world GDP growth outlook over the next few years.

Certainly, Vodafone is an unpopular share at the moment. It has a dividend yield of around 8%, and has underperformed many of its FTSE 100 peers in recent months. This situation may take time to change. But with a new CEO having the potential to deliver the company’s growth strategy and it offering a wide margin of safety, now could be the right time to buy it. From a value investing perspective, its long-term investment appeal seems to be high.

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Peter Stephens owns shares of Vodafone. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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