The past four months have been tough for shareholders in Vodafone Group (LSE: VOD). After rising above £1 by mid-February, the Vodafone share price has since tumbled by a quarter.
Vodafone shares slump again
My wife bought Vodafone shares as a value play in December 2022, paying 90.2p a share. At first, they made good ground, backing my hunch that the telecoms group was undervalued.
However, this stock has now moved from a modest profit to a growing problem for our family portfolio. At the current share price of 77.45p, we’re nursing a paper loss of around 14.1%.
Here’s how this popular and widely held share has performed over seven different periods:
| One day (as I wrote this) | +1.7% |
| Five days | -3.6% |
| One month | -17.3% |
| Year to date | -8.1% |
| Six months | -15.0% |
| One year | -38.5% |
| Five years | -58.7% |
Over periods ranging from five days to five years, Vodafone shares have lost value. Indeed, they’re down almost two-fifths over one year and nearly three-fifths over five years.
These figures exclude cash dividends — a major part of the company’s long-term returns to shareholders. But even after adding these in, this FTSE 100 share has been a serial disappointment to its owners.
Is Vodafone just a value trap?
On 20 July 2022, the share price hit its 52-week high of 132.04p — a peak that seems very far away from current price levels. Indeed, the stock hit its 52-week low of 74.38p just days ago, on Tuesday (30 May).
At the peak of the dotcom boom in 2000, Vodafone was the largest listed company in Europe. Today, its market value has crashed to just £20.9bn. Yikes.
Again and again, I’ve heard market pundits refer to European telecoms stocks (including Vodafone) as ‘value traps’ and ‘yield graveyards’. After years of being proved right, perhaps it’s time I listened to these sceptics?
The stock looks cheap to me
When I look at this stock today, it seems undervalued. At the current share price, it trades on a lowly price-to-earnings ratio of 7.7, for an earnings yield of 12.9%. That’s quite a bit cheaper than the wider FTSE 100.
What’s more, the shares offer a double-digit dividend yield of 10.2% a year — one of the very highest in the London market. However, this payout is covered only 1.3 times by earnings, leaving little room for error.
One piece of good news is that Vodafone now has a permanent CEO, Margherita Della Valle, after previous boss Nick Read departed last December. Perhaps she’ll do a better job of turning this tanker around than her predecessor?
On the negative side, Vodafone carries almost €33.4bn (£28.7bn) of net debt on its balance sheet, at a time of rising interest rates. However, this has decreased by 19.7% over one year.
For the record, my wife and I have no plans to add to our Vodafone holding right now. While the shares are cheap, this business faces some high hurdles on the road to recovery. But we won’t be selling our existing shareholding either!
