Image source: Getty Images
A few painful years have pushed the Vodafone (LSE:VOD) share price to levels previously seen only in the last century. Shares now change hands for 72p, a price that sounds more like a cheap share than one of Europe's biggest companies.
Comparing it to previous highs of 294p in 2014, 237p in 2018, 128p in 2022 or even that dotcom-driven all-time high of 548p a few years ago raises an obvious question. How cheap is the price?
Irregular record
Before I try to unravel an answer to that question, I'll note that I'm approaching this with a degree of caution. As the famous saying goes, a stock that has fallen by 90% is one that fell by 80% and then fell by half again. I'll need more than just a deep discount to consider stocks worth buying. With that in mind, what do we have here?
The recent big news centers on a dividend that has been cut. The company was paralyzed trying to keep up with payments it couldn't really afford. A performance that had exceeded 10% seemed quite unsustainable, so I consider the decision to be a good one. However, income seekers might be discouraged by a yield close to 5% from a company that has a spotty track record of growing its value.
Speaking of growth, analysts expect significant earnings growth in the coming years. The consensus EPS (earnings per share) between 2024 and 2027 represents an increase of 57%. If they are close to the mark, then today's share price yields a hypothetical P/E ratio of just 6.6. That's undeniably cheap and more in line with dinosaur stocks like oil and tobacco than a company at the beating heart of modern technology.
Screen time
As with many technology stocks, telecoms companies have many growth opportunities to offer, especially in less established markets such as Africa, where Vodafone has a presence. Unfortunately, this is more than offset by the fact that the company's largest markets, such as the United Kingdom and Germany, have reached a saturation point. Most people are already paying for all the data they need. Many others are actively trying to use less in an effort to not succumb to the negative effects of too much screen time.
Another problem is the low return on capital employed. Basically, Vodafone is investing in infrastructure and doesn't see much profit. Combined with other problems, this makes the share price not look as cheap as it appears at first glance.
A promising way out of these problems is the proposed merger with Three. While it has yet to receive the go-ahead, the move would put the new company at number one in the UK mobile market and potentially deliver a host of operational efficiencies. Is that enough to say that Vodafone's share price is cheap? Probably not. stocks are not a buy for me right now.
