It’s been another ugly year for Vodafone Group (LSE: VOD) shareholders. On Friday (8 December) the Vodafone share price crashed to a new low 68.75p, before rebounding to close at 69.5p.
At the turn of the century, this telecoms group was Europe’s largest listed company, following its ill-timed merger with German rival Mannesmann. When the dotcom bubble burst in 2000, Vodafone stock crashed hard, never returning to former glories. Today, the group’s value is £18.8bn
The share price slumps again
I had high hopes for this stock last year, so my wife and I bought Vodafone shares at 90.2p each in December 2022. What a mistake that was, as we’re currently nursing a capital loss of 22.9% (excluding dividends). Yikes.
Then again, go back nine months and the share price was riding high, hitting its 2023 peak of 103.24p on 21 February. Alas, it’s been downhill ever since, as the following table shows:
| Five days | -3.4% |
| One month | -9.0% |
| Six months | -4.6% |
| 2023 to date | -17.5% |
| One year | -20.2% |
| Five years | -56.8% |
Over all periods ranging from five days to five years, Vodafone shares have bled value. They’ve dived by over a fifth in a year and have collapsed by more than half over five years. No wonder long-suffering shareholders are rushing for the exits by selling out of this lame duck.
Then again, share prices only tell me about the past performance of stocks. They give no clue about what might be coming round the corner, either tomorrow or five years from now.
Is it a recovery play or a busted flush?
The big question for me today is whether this company is in permanent decline. If it is, then perhaps I should cut my losses by selling? Or do I hold on, hoping that the telecoms group’s recovery works out?
Once again, Vodafone shares look very cheap. But so too does the rest of the European telecoms sector — sometimes described as a ‘graveyard of value’.
Based on the current share price of 69.5p, Vodafone stock trades on a forward multiple of 7.1 times earnings, delivering an earnings yield of 14.1%. This covers the huge dividend yield of 11.4% a year, but only by 1.2 times.
Hold or fold?
Continuing my poker analogy, do I hold my Vodafone shares, believing that latest CEO Margherita Della Valle can turn this tanker around? After all, while I hold, I earn over 11% a year in dividend income.
But what if Vodafone continues to be a value trap, destroying wealth for shareholders? And what about the €33.4bn of net debt weighing down its balance sheet? Will this eventually force the dividend to be cut?
As an experienced poker player, I know that even the best-placed bets sometimes go wrong. Also, I know that predicting the future is impossible. Therefore, I think I’ll hang on to our Vodafone stock for now, hoping for the share price to recover.
That said, I suspect I will probably fold on the next piece of bad news from this ailing FTSE 100 firm!
