Vodafone share price is cheap by ~66%: Avoid it anyway

Telecom stocks have crashed hard this year. In the US, AT&T shares plunged to a multi-decade low while Verizon sits at its lowest point in 12 years. Similarly, in the UK, the Vodafone (LON: VOD) share price has tumbled to 70p, its lowest level since October 2011.

Vodafone challenges remain

Vodafone has become one of the worst-performing companies in the FTSE 100 index. It has fallen by 13.60% this year while the blue-chip index is down by less than 2%. Most importantly, the company has underperformed other UK telecom groups like BT Group.

Vodafone faces many challenges. For example, some of its global operations are not doing well. India’s Vodafone Idea is losing market share to Jio and its losses are rising. As a result, the government was forced to intervene. 

Its other markets like Africa and Turkey are facing headwinds. A key challenge is that some of its markets like Kenya, Egypt, and South Africa are seeing currency devaluations. I believe that the company should consider spinning off some of these operations into an independent company.

Vodafone is also trying to push a deal to combine with Three, as I wrote here. Most importantly, the company is implementing a large-scale cost cut operation. The management hopes to cut costs by over 1 billion euros by 2026.

Vodafone’s stock price is extremely cheap. According to Simply Wall St, the stock is trading at a 66% discount based on a discounted cash flow (DCF) calculation. The estimate places the fair value at 216p. 

Also, the company is much undervalued compared to peers. It has a PE ratio of 1.9 compared to the industrial average of 14. Despite all this, it is hard to recommend buying Vodafone shares because of its slow growth and challenges in its key markets.

Vodafone share price forecast

VOD chart by TradingView

Vodafone stock price has been in a strong bearish trend in the past few months. It dropped to a low of 70.10p, where it has failed to move below since June. 

The shares have dropped below the 25-day and 50-day moving averages. It has moved below the Ichimoku cloud and the important resistance point at 79.17p (December 21 low). The stock broke below 72.58p (March 2020 low)

Therefore, the shares will likely have a bearish breakout in the coming days. If this happens, the stock will likely have a bearish breakout as sellers target the key support at 65p.