The stock of Vodafone Group PLC (NAS:VOD, 30-year Financials) gives every indication of being fairly valued, according to GuruFocus Value calculation. GuruFocus Value is GuruFocus' estimate of the fair value at which the stock should be traded. It is calculated based on the historical multiples that the stock has traded at, the past business growth and analyst estimates of future business performance. If the price of a stock is significantly above the GF Value Line, it is overvalued and its future return is likely to be poor. On the other hand, if it is significantly below the GF Value Line, its future return will likely be higher. At its current price of $18.51 per share and the market cap of $52.3 billion, Vodafone Group PLC stock shows every sign of being fairly valued. GF Value for Vodafone Group PLC is shown in the chart below.
Because Vodafone Group PLC is fairly valued, the long-term return of its stock is likely to be close to the rate of its business growth.
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It is always important to check the financial strength of a company before buying its stock. Investing in companies with poor financial strength have a higher risk of permanent loss. Looking at the cash-to-debt ratio and interest coverage is a great way to understand the financial strength of a company. Vodafone Group PLC has a cash-to-debt ratio of 0.23, which is in the middle range of the companies in Telecommunication Services industry. The overall financial strength of Vodafone Group PLC is 3 out of 10, which indicates that the financial strength of Vodafone Group PLC is poor. This is the debt and cash of Vodafone Group PLC over the past years:
Investing in profitable companies carries less risk, especially in companies that have demonstrated consistent profitability over the long term. Typically, a company with high profit margins offers better performance potential than a company with low profit margins. Vodafone Group PLC has been profitable 6 years over the past 10 years. During the past 12 months, the company had revenues of $50.7 billion and earnings of $0.977 a share. Its operating margin of 20.34% better than 81% of the companies in Telecommunication Services industry. Overall, GuruFocus ranks Vodafone Group PLC's profitability as fair. This is the revenue and net income of Vodafone Group PLC over the past years:
One of the most important factors in the valuation of a company is growth. Long-term stock performance is closely correlated with growth according to GuruFocus research. Companies that grow faster create more value for shareholders, especially if that growth is profitable. The average annual revenue growth of Vodafone Group PLC is -2.6%, which ranks worse than 67% of the companies in Telecommunication Services industry. The 3-year average EBITDA growth is 3.7%, which ranks in the middle range of the companies in Telecommunication Services industry.
One can also evaluate a company's profitability by comparing its return on invested capital (ROIC) to its weighted average cost of capital (WACC). Return on invested capital (ROIC) measures how well a company generates cash flow relative to the capital it has invested in its business. The weighted average cost of capital (WACC) is the rate that a company is expected to pay on average to all its security holders to finance its assets. If the return on invested capital exceeds the weighted average cost of capital, the company is likely creating value for its shareholders. During the past 12 months, Vodafone Group PLC's ROIC is 5.51 while its WACC came in at 4.25. The historical ROIC vs WACC comparison of Vodafone Group PLC is shown below:
In closing, the stock of Vodafone Group PLC (NAS:VOD, 30-year Financials) is believed to be fairly valued. The company's financial condition is poor and its profitability is fair. Its growth ranks in the middle range of the companies in Telecommunication Services industry. To learn more about Vodafone Group PLC stock, you can check out its 30-year Financials here.
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