According to data from AJ Bell and Hargreaves Lansdown, UK investors have been busy snapping up shares of Vodafone (LSE: VOD). Indeed, this was the most bought FTSE 100 stock on both platforms last week (based on the number of deals placed by customers).
Should I follow the crowd and invest too? Here are my thoughts.
Concerns
To form my decision, I’m going to look at a few key things. The first is the share price trend.
Now, this isn’t a dealbreaker one way or the other. But it does tell me whether investors have been bullish, bearish, or neutral on the stock.
Over the past year, Vodafone shares have been basically flat compared to the FTSE 100’s 13% rise. Over five years, Vodafone stock is down 57%.
I see a few obvious reasons why investors continue to be unconvinced here.
Firstly, Vodafone has not been growing. Revenue was €43.6bn in FY 2019, but only €36.7bn in FY 2024 (ended March). Looking ahead to FY 2026, the top line is expected to grow to €38.1bn.
Admittedly, the company has been actively divesting revenue-generating assets to streamline operations and focus on core markets. But the fact remains that overall growth has been disappointing.
Again, this doesn’t necessarily rule out the stock for me. I own shares of Legal & General and British American Tobacco for income, even though neither have been setting the world alight in terms of growth.
However, both firms have a tremendous record of increasing their payouts. In contrast, Vodafone’s dividend per share has gone from 9.24 euro cents per share in 2019 to a forecast 5.3 for 2025. That is expected to fall to 5.1 cents per share next year.
While that does put the forward dividend yield above 6%, the income prospects aren’t really tempting me.
Finally, there is the inescapable issue of debt. Building and operating telecoms infrastructure is notoriously capital-intensive. At the end of September, net debt was a hefty €31.8bn.
Even though that figure was down from €33.2bn in March 2024, the decrease was primarily driven by the €4.1bn sale of Vodafone Spain.
Some good bits
So why have investors been buying the shares en masse? Presumably it relates to the Vodafone UK-Three UK merger that was cleared in December.
This will create the UK’s largest mobile phone operator, with some 27m subscribers, and a plan to create one of Europe’s most advanced 5G networks. A new leadership team was announced last week for the future merged entity.
Perhaps these investors also turned bullish after the company’s recent Q3 results. Revenue increased 5% year on year to €9.8bn, with strong growth in Africa. And a mammoth €2bn has been earmarked for share buybacks following the €8bn sale of Vodafone Italy.
Meanwhile, the stock continues to look ultra-cheap, trading at just 10 times earnings. So there appears to be significant value on offer, at least on paper.
Should I invest?
Another worry I have though is that revenue is heading in the wrong direction in Vodafone’s key market of Germany.
Meanwhile, it is committed to investing £11bn to build out 5G in the UK. It could be a while before the benefits of that massive expenditure materialise.
Weighing things up, I’m going to give this value stock a miss.
This post was originally published on Motley Fool
