The performance of the Vodafone (LSE: VOD) share price has been absolutely horrendous over the past year.
The stock has fallen 5%, excluding dividends, since the middle of November last year. And while that does not look particularly terrible in isolation, when compared to the FTSE 100, the picture is much worse. Over the same time frame, the FTSE 100 has returned 14%, excluding dividends. To put it another way, the Vodafone share price has underperformed the blue-chip index by nearly 20% over the past 12 months.
Over the past five years, the gap has been even worse. Vodafone has returned -43% excluding dividends, compared to 8% for the FTSE 100.
Vodafone share price declines
I can see why the market has been selling the company during this time frame. The group has a weak balance sheet, competition in the global telecommunications market is fierce, and Vodafone has massive capital spending obligations. It needs to spend billions of euros every year to keep ahead of the competition.
As such, the group’s ability to return cash to investors and reduce debt is limited.
I think the market is spending too much time focusing on the negatives without giving any regard to the company’s dominance in the European data market.
Vodafone is one of the largest telecommunications operators in Europe. It has a presence in virtually every European market and has invested tens of billions of euros to build a fast, reliable network over the past couple of decades.
Last year, with many consumers confined to their homes, the company could not make the most of its advantages. However, the group’s results are now reflecting its efforts to gain an edge over competitors.
According to the company’s half-year numbers, revenues increased 5% overall, reaching €22.5bn.
Meanwhile, underlying cash profits before leases rose 6.5% to €7.6bn. A robust performance in the international group’s European markets, particularly Germany and the UK, helped drive overall revenue expansion.
Undervalued opportunity
I think these numbers show that after a rough 2020, Vodafone is now heading in the right direction. Its investments in infrastructure and technology should help support the growth.
The contribution from the recently acquired Liberty Global assets should also start to shine through in the firm’s figures over the next couple of quarters.
That being said, it is not going to be plain sailing for the organisation from here. Its debt pile, which stands at €44.3bn, is still an issue. Further, the rollout of 5G technology across the network will be hugely costly. It is another cost the group does not need.
Still, I think the market is overlooking Vodafone’s growth potential as an integrated telecommunications giant in a world where the demand for mobile data is accelerating. That is why I would buy the stock for my portfolio today as a value and growth investment. Its dividend yield of 6.2% is also desirable in the current interest rate environment.
Rupert Hargreaves has no position in any of the shares mentioned. 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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