3 the reason why Vodafone shares look dirt-cheap! Is it now time to purchase?

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Picture supply: Getty Photographs

Vodafone Group (LSE:VOD) shares are actually buying and selling at their most costly since late 2023. A constructive response to full-year financials has swept the telecoms titan 3.4% larger on Tuesday (14 Could), to 72.3p per share.

However I consider the FTSE 100 agency nonetheless appears filth low-cost at as we speak’s costs. Listed below are three the reason why.

Earnings

For this monetary yr (to March 2025), Vodafone trades on a ahead price-to-earnings (P/E) ratio of 9.3 instances.

This studying — which is constructed on Metropolis expectations that earnings will rise 17% yr on yr — is beneath the Footsie common of 10.5 instances.

Vodafone’s share worth additionally instructions a price-to-earnings progress (PEG) ratio of 0.6. Any sub-1 studying signifies {that a} share is undervalued relative to its progress prospects.

Dividends

Vodafone grabbed the headlines earlier this yr when it introduced plans to rebase the dividend. This got here as no shock to many: discuss of a discount had lengthy been circulating because of the agency’s excessive money owed.

But based mostly on Metropolis forecasts, the corporate’s dividend yield for monetary 2025 nonetheless stands at 7.9%.

That is greater than double the three.5% FTSE 100 common.

Belongings

Lastly, Vodafone’s shares look filth low-cost relative to the worth of the agency’s property. This may be evaluated utilizing the price-to-book (P/B) ratio.

Just like the PEG ratio, a studying beneath 1 signifies {that a} inventory is undervalued. In the present day, Vodafone’s a number of sits at a rock-bottom 0.4.

Why is Vodafone so low-cost?

The cheapness of this specific Footsie inventory is right down to a number of causes.

Firstly, the dimensions of Vodafone’s debt pile continues to spook buyers regardless of the corporate’s determination to slice dividends. Web debt was €33.3bn on the finish of March, roughly unchanged yr on yr.

Additionally, Telecoms is a really capital-intensive enterprise. And so fears that prime debt ranges will endure — a situation that might drag on the agency’s progress plans and dividend coverage — stay an issue.

Lastly, worries over Vodafone’s troubles in Germany are additionally dampening its share worth. Modifications to legal guidelines regarding providers bundling have smacked the corporate’s efficiency in its single largest market.

Is now the time to purchase?

Nonetheless, Tuesday’s full-year replace underline the stable progress Vodafone is making to show issues round.

After a lot ready, gross sales progress lastly returned to every of the corporate’s markets within the March quarter. This, in flip, pushed natural service revenues for the total monetary yr 6.3% larger. And, encouragingly, gross sales progress in Germany accelerated to 0.6% throughout quarter 4.

Gross sales at Vodafone Enterprise, a division earmarked for giant issues wanting forward, additionally continues to hurry up, rising 5.4% within the closing quarter.

The corporate’s cost-reduction drive — which incorporates the slicing of 11,000 roles over three years — can also be progressing in a lift to earnings and money flows.

So ought to buyers take into account shopping for Vodafone shares, then? I feel the reply is sure. Following the sale of its underperforming Spanish and Italian items, and with steps to reverse its fortunes elsewhere paying off, I feel the Footsie agency’s share worth may proceed heading larger.

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