Volatile Vodafone

Way back in December 2013, Vodafone shares were trading close to £3. But that marked a distant high for this popular and widely held stock, which then set off on multi-year declines.

On 9 April 2025, the Vodafone share price hit a low of 62.4p, down around 80% from its 2013 high. Repeatedly during last year, I argued that this FTSE 100 firm was undervalued, unloved, and due a valuation re-rating.

For the record, my family portfolio owns shares in Vodafone. We paid 90.2p a share for our stake in December 2022, only to watch as the price kept finding lower lows.

However, over the past year, someone lit a match under this Footsie stock, sending it soaring like a rocket. As I write on Tuesday afternoon (5 May), the share price stands at 115.85p. This values the group at £26.7bn — close to twice its April 2025 lows.

What revived this stock?

Over one year, the Vodafone share price has surged by 58.8%. That said, the shares are down 18.3% over five years — a hint of the pain suffered by long-standing shareholders. (Both figures exclude cash dividends, which have been very generous from this stock.)

For me, much of the recovery in the group’s recent fortunes can be attributed to Margherita Della Valle, who took over as permanent CEO in April 2023. Her turnaround strategy focused on selling non-core assets to raise cash. Vodafone has used these proceeds to invest in core markets, as well as buying back its own cheap shares.

Della Valle also grasped the nettle by tackling the group’s sky-high dividend yield (which reached double digits at times). In May 2024, Vodafone halved its yearly cash payout from 9 euro cents to 4.5 euro cents from 2025 onwards.

Following this extensive restructuring, in November 2025, Vodafone announced its first dividend increase in eight years — a modest 2.5% from the previously rebased level.

Big deal!

Vodafone unveiled its latest corporate move on Tuesday. The group is to pay £4.3bn to buy partner CK Hutchison’s 49% stake in their VodafoneThree joint venture. The Hong Kong-based conglomerate is raising huge sums from asset disposals in 2025/26.

This would leave Vodafone in full control of VodafoneThree, making it top dog of the UK’s three mobile-network operators. The transaction values this business at nearly £13.9bn — more than half of Vodafone’s current market capitalisation. The deal is set to be completed in the second half of this year.

It’s good to see Vodafone’s ship finally settling after years of sailing rough seas. I’m hopeful that this latest deal will prove positive for shareholders. If I’m right, then the share price could shoot past the 120.95p high hit on 18 February, before the US-Iran war sent stock markets tumbling.

For now, I’m happy to sit back and keep hold of our Vodafone stock, banking the near-3.4% yearly dividend yield while we wait. Plus there’s under a week before the half-year results on 12 May!

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The FTSE 100 is up 6.3% in 2026, but Vodafone shares have easily beaten the index. Indeed, they’re at levels not seen since August 2023. What’s going well for this British telecoms provider?

Value in Vodafone

The Vodafone share price has surged from its 52-week low, after it slumped to 67.8p on 14 May 2025. Back then, Vodafone seemed an obvious recovery play to me, instead of the value trap it’s been for years. Nevertheless, I didn’t buy, because my family portfolio had already purchased this stock at 90.2p a share in December 2022.

Since 2022, Vodafone shares have been much weaker and more volatile than I’d hoped. As I write, they now stand at 114.49p, valuing this FTSE 100 firm at £26.5bn. This leaves the stock up a healthy 58.6% over one year. However, the shares have lost 14.3% of their value over five years. All the above returns exclude cash dividends — previously very generous from Vodafone.

As shareholders, my family is sitting on a paper profit of 26.9% to date. However, reinvesting our chunky dividends into buying more shares has increased our shareholding, boosting our future returns.

Turning the tanker around

In May 2024, the company announced that it would halve its yearly dividend from 2025 onwards. This slashed the payout per share from €0.09 (nine euro cents) to €0.045. This was a bitter blow for income investors holding the stock (including me).

Also, Vodafone CEO Margherita Della Valle has been selling non-core assets to raise cash. Della Valle has used this cash pile to reduce the group’s net debt, which stood at €25.9bn (£22.6bn) at end-September 2025. She has also accelerated Vodafone’s share buybacks, with €3.5bn of stock repurchased since May 2024.

What next?

On 30 December 2025, I predicted the Vodafone share price would exceed £1 ‘very soon’. My forecast soon proved correct, as the shares closed at 100.5p on 6 January. The stock has continued rising since Vodafone released its third-quarter trading update on 5 February.

What if this business keeps using its strong cash flows to pay down debt, buy back shares, and invest in growth markets? Then I suspect the shares could pass the 125p mark in 2026. Then again, that’s only 9.2% up from here, so I’m hardly sticking my neck out.

That said, what might derail Vodafone’s recent progress? I worry about growth slowing in its two key markets: Europe (112m customers) and Africa (165m customers). In particular, any setbacks in Germany (its biggest market) and the UK could hit revenues and earnings.

Finally, Vodafone’s much-reduced dividend yield now stands at 3.4% a year, but this still beats the FTSE 100’s 3% a year. Hence, I will hold tightly onto our holding, while awaiting the full-year results on 26 May!

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We do, however, need to see this against the longer-term background. Over the past five years, Vodafone shares are down 13%. But with the recovery of the past couple of years, it does look like the company’s transformation is going well.

Strong momentum

CEO Margherita Della Valle broadly summed up Vodafone’s impressive progress at interim time. She said: “Following the progress of our transformation, Vodafone has built broad-based momentum. In the second quarter we saw service revenue accelerating, with good performances in the UK, Türkiye and Africa, and a return to top-line growth in Germany.”

She added: “Based on our stronger performance, we are now expecting to deliver at the upper end of our guidance range for both profit and cash flow, and as our anticipated multi-year growth trajectory is now under way, we are introducing a new progressive dividend policy, with an expected increase of 2.5% for this financial year.“

And she reiterated the same profit and cash flow guidance at Q3 time in February. Full-year results for the current year are due on 12 May. They should be essential reading.

What next?

Vodafone has come a long way since 2023, when the boss was telling us: “Our performance has not been good enough. To consistently deliver, Vodafone must change.”

But how much more is there to come from Vodafone shares? Checking on broker forecasts, I get mixed messages. On the one hand, they’re predicting progressive earnings rises through to at least 2028.

Management cut the dividend in half for 2025 as part of cost-cutting plans. But we should see increases — albeit modest ones — kicking in again. We’re only looking at forecast dividend yields of around 3.4% — way down from the unsustainable 10% levels in their free-cash heyday. But strong cover by earnings is vital, and we should be seeing plenty of that.

So, it sounds like all is going well. But brokers disagree on whether we should buy Vodafone shares now, or sell. And they have an average price target only around the current level.

Danger not over

The problems aren’t all solved, and the CEO is straight about more needing to be done. For one thing, net debt reduction stalling. And it’s actually expected to rise this year, to around €25bn.

And Vodafone is committed to some serious capital expenditure in the next few years.

My take on Vodafone shares now? I like how well things have gone, but there’s still much uncertainty. And I wonder if the share price might have gone a bit too far, too soon. I don’t see much safety margin today.

I do see solid long-term potential at Vodafone. But for now, I think investors might do better to consider some of the better value alternatives out there.

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That means anyone who bought £5,000 worth of shares is now sitting pretty on £8,455. But if Vodafone keeps up its current pace, this might be just a tiny slice of the profits yet to come.

So what needs to happen for Vodafone shares to keep on climbing? And what are the key risks that investors need to keep a careful eye on?

Can the recovery momentum continue?

After a near-decade of near-continuous decline, CEO Margherita Della Valle is delivering the operational turnaround that a host of previous leaders failed to achieve.

With non-core operations divested to raise funds, Vodafone’s balance sheet is slowly being deleveraged, with underlying free cash flow incrementally improving. And just a couple of months ago, management began selling off its stake in VodafoneZiggo Group to raise another €1bn.

But while these divestments provide some short-term financial flexibility, it’s the company’s operations in Germany that are the critical turnaround factor. Due to fierce competition and its own complacency, Vodafone’s core German operations have been in steep decline for years.

However, as per the group’s latest results, this part of the business has finally returned to growth. In fact, it’s now sitting on its second consecutive quarter of improvement, marking a potential inflexion point.

At the same time, its recent merger with Three UK is currently moving ahead of schedule, while its novel fintech payments business in Africa continues to grow at an impressive pace.

With more free cash flow at hand, the balance sheet’s getting steadily repaired and operations are taking back market share, so Vodafone shares seem to have exciting potential.

What could go wrong?

While the group’s progress made so far is encouraging, it’s critical for investors not to get too excited too quickly.

The company still has €51.5bn of debts & equivalents on its books – not something divestments alone will be able to clear. And with Vodafone promising regulators to spend £11bn in infrastructure upgrades within the UK to receive the green light for its Three UK merger, free cash flow flexibility remains constrained.

As for Germany, once again, the business seems to be moving in the right direction. But it’s important to note that the ‘inflexion point’ is so far not guaranteed. Service revenues have indeed returned to growth, but only by a tiny margin. And the competitive pressures that historically chipped away at its market share are still present today.

So where does that leave investors today?

The bottom line

For now, Vodafone’s recovery remains fragile. Sentiment’s rightfully improving, but there are still plenty of weak spots that could derail progress, with Germany being what most institutional analysts are watching closely. Investing early in a recovery story is a risky endeavour. But if management’s strategy continues to succeed, it could prove to be a lucrative move.

Personally, I think there’s enough potential here to merit a closer look at Vodafone shares for long-term (and patient) investors.

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There are a couple of names that look incredibly cheap initially, but I’m staying well away from them. Why? A closer look reveals some hidden liabilities.

Vodafone: not as cheap as it looks

At first sight, Vodafone (LSE:VOD) shares look cheap. On a screener, it shows up as trading at a free cash flow multiple somewhere around 4.

In reality, it’s not that cheap. And this is why investors need to do more than just look at screeners. 

Officially, free cash flow is cash from operations minus capital expenditures. In Vodafone’s case, that’s €14bn less €6.9bn.

Set against a €27.2bn market cap, that is indeed a multiple of 3.8. But this isn’t the entire story with this company. 

Vodafone’s cash outflows are much more than just its capital expenditures. They include things like interest expenses and lease liabilities.

Source: Vodafone 2025 Annual Report

None of this is a secret. The company presents all of this in its investor materials, but those investors do need to go and find this to figure it out.

Adding all of this in, the firm’s free cash flow is actually closer to €1.8bn. And that implies a multiple closer to 15. 

I’m not saying there’s anything wrong with the business. But investors attracted by a low multiple should take a closer look.

easyJet: hidden liabilities

easyJet (LSE:EZJ) is another stock that isn’t as cheap as it looks. On the face of it, the stock looks like a financial fortress. 

Again, at first sight, the firm shows up as having more cash than debt. And this is accurate, but it’s not the whole story.

The company has around £2bn in what it calls “unearned revenue”. That’s cash it’s received from customers for services it hasn’t provided yet.

Source: easyJet 2025 Annual Report

This is pretty normal in this industry. Customers usually book their flights and holidays months in advance of going on them.

It’s also a good thing. It means easyJet doesn’t have to use debt to finance its operations – it can use unearned revenues and not pay interest. 

These liabilities don’t show up as debt, because easyJet isn’t going to pay customers back. But it is going to have to meet those costs. 

Again, there’s nothing wrong with how easyJet reports this. Investors just need to know what they’re looking for. 

In the context of a £2.8bn company, £2bn in additional liabilities is a lot. And when I factor this in, I become less interested in the stock.

Hidden risks

UK stocks have a reputation for being cheap. And a lot of them look that way at first sight on a basic screener. 

On closer inspection, though, some are less attractive than they seem. So taking a proper look is non-negotiable for investors.

I don’t really use screeners in my own investing. But I’m not against it in principle. 

I do think that there’s no substitute for a proper look at a company’s reports. That’s where investors can find hidden risks.

Both Vodafone and easyJet have strengths. But after looking more closely, neither makes it onto my list of stocks to buy.

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But as disappointing as Vodafone’s performance might be, the telecoms giant’s a very different business today (6 April) to what it was five years ago. Let’s explore this further.

Then and now

During the year ended 31 March 2021 (FY21), Vodafone reported revenue of €43.8bn and adjusted EBITDAaL (earnings after interest, tax, depreciation, and amortisation, after leases), its preferred measure of profit, of €14.4bn. For FY26, analysts are expecting these to be €40.5bn and €11.5bn respectively.

Some of this downsizing has been deliberate. Under the leadership of Margherita Della Valle, the group’s been aiming to increase its return on capital employed (ROCE). The sector’s notorious for requiring huge amounts of investment – telecoms infrastructure doesn’t come cheap – yet falling behind others when it comes to earnings, largely due to fierce competition.

To combat this, the group’s been selling off some of its non-core assets and exiting countries, most notably Spain and Italy, where returns are lower. And this strategy appears to be working. In FY21, the group reported a pre-tax ROCE 5.5%. For the first six months of FY26, it was 7.2%.

On the turn?

But some of the drop in revenue and earnings hasn’t been planned. A new law in Germany stopped the bundling of TV contracts with tenancies in multi-dwelling properties. It gave those renting the opportunity to shop around rather than having their service provider chosen by the landlord.

However, after a long period in the doldrums, revenue in the country started to grow again during the second quarter of FY26.

Vodafone’s FY21 dividend was nine euro cents a share. However, a 50% cut was announced in March 2024. But 20 months later, the group announced that it planned to increase its FY26 payout by 2.5%.

With all this positive news, Vodafone’s share price has been steadily increasing. It’s now 80% higher than in April 2025, just after President Trump caused a stir with his tariff announcements.

But the group still faces some significant challenges. Competition remains intense and concerns have been raised about its high level of borrowings. As a result of events in the Middle East, interest rates now look as though they are going to stay higher for longer. This could increase the cost of servicing Vodafone’s debt.

Final thoughts

Despite these threats, the group’s growing again. It’s doing particularly well in Africa. Here, the continent’s young rapidly-increasing population makes it the perfect market for a telecoms provider. And across the group, its offer to business customers is proving popular.

In terms of valuation, the stock’s currently trading below its five-year average earnings multiple. And it has a price-to-book ratio of less than one. Although, some of this probably reflects the large amount of goodwill and other intangible assets that sit on its balance sheet following a series of acquisitions. These types of assets can be difficult to value accurately.

Overall, I think Vodafone’s new strategy is starting to bear fruit. We will know more when the group announces its full-year results in May. However, I’ve seen enough to make me think that Vodafone’s shares could be considered now.

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A clear outperformer

The last annual results came out in late May 2025. The stock surged on the day from 72.46p to close at 77.4p, a 6.8% gain. From there, it has continued to climb, with it now at 115p. This represents a 48.6% move in under a year, meaning the £2k would be worth £2,972 at the moment. Of course, the value of the stock fluctuates every day. So any profit or loss will only be realised when it’s sold, and the proceeds are in a bank account.

Yet the jump from the last earnings shows Vodafone’s progress, which has outstripped peers and the broader market. For example, over the same period, the FTSE 100 is up 19%. Don’t get me wrong, that’s still a strong gain. But it’s nowhere near Vodafone’s performance.

Building momentum

The results from a year ago provided a catalyst for the stock to rally. The company confirmed it had completed a major phase of its restructuring and was entering a period of sustainable free cash flow growth.

Further, the UK merger with Three was all but completed by last May, and is genuinely a big deal. It creates the UK’s largest mobile operator and opens the door to meaningful cost synergies (around £700m annually).

With a continued push to sell unprofitable operations around the world and to focus on places where growth was evident, Vodafone has pushed ahead. Investors have cheered this on in the past year, but I don’t think the story is over yet.

The future

The reshaped Vodafone has a lot going for it. For a start, it’s more focused. As the firm is more cash generative, it can afford to invest in growth markets. Two recent examples of this include Kenya and Egypt. Even here in the UK, the merger should deliver both cost savings and revenue opportunities.

One concern I do have is underperformance in Germany. It’s still the group’s largest market, and while there are signs of stabilisation, performance has been patchy. This needs to improve or it could really weigh on future financial performance.

On balance, I believe the run-up in the share price over the past year isn’t over yet. Companies like Vodafone take years to fully transform and realise both cost benefits and new revenue opportunities. Therefore, I think earnings could keep growing for 2026 and beyond. Investors who agree with me could consider buying the stock.

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Vodafone had become too big and sprawling. Debt piled up, growth stalled and key markets such as Germany, Italy and Spain struggled. Telecoms is a competitive market, spectrum auctions cost a fortune and regulation was tight. The constant need for restructuring distracted management. Yet it finally appears to be bearing fruit.

The turnaround takes hold

Vodafone is a leaner beast today, after selling off weaker divisions and sharpening its focus. That’s freed up cash to chip away at its debts and fund a €4bn share buyback. It was even able to increase the dividend in November, the first hike since 2018. That felt like it turning a corner.

The Vodafone share price has climbed 45% in the last year. Add in the trailing dividend yield of 3.6% and the total return climbs to 48.6%. A £15,000 investment a year ago would now be worth £22,290. That’s a total return of £7,290. This shows the impressive rewards that can be made from investing in beaten-down FTSE 100 recovery stocks. However, as Vodafone has shown, investors may have to be very patient on occasion.

Q3 results on 5 February were pretty solid. Revenue rose 6.5% to €10.5bn, while adjusted core earnings edged up 2.3% to €2.8bn. The board expects full-year earnings to land at the top end of forecasts, between €11.3bn and €11.6bn, alongside adjusted free cash flow of €2.4bn to €2.6bn. The recent integration of Three UK appears to be on track.

Yet the shares dipped on the day, as Vodafone continues to struggle in Germany, its biggest market. And now we have war in Iran, and fears of another cost-of-living crisis. A lot of consumer stocks in my portfolio have taken a beating. But maybe telecoms is different. Nobody is giving up their mobile phone these days. Although more of them might shop around for a cheaper supplier. The shares have slipped 6.5% in the last month. That’s modest compared to some.

Reasons for caution

Despite all that good news, risks remain. Net debt sits around €25bn, pushed up by the Three deal. Companies like Vodafone have to keep pouring cash into their networks. There’s little room for error if trading conditions worsen.

The price-to-earnings ratio has climbed with the shares and now stands at 15.9. So I wouldn’t call that cheap. Vodafone shares are worth considering with a long-term view. But with recent volatility throwing up so many bargains on the FTSE 100, I wouldn’t put it at the top of my buy list.

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This does not necessarily mean that they are undervalued now, but they may be. That all depends on the strength of the underlying fundamentals of the business.

So, how do these look now, and how high can they drive the share price from here?

Business momentum building?

Earnings (‘profits’) growth is the engine for share price and dividend gains in any stock over time. A risk to Vodafone is the high degree of competition in the sector, which may compress its margins. And this pressure is only compounded by the group’s substantial debt. After all, building out telecommunications infrastructure isn’t cheap.

However, despite this, analysts’ consensus forecasts are that its earnings will grow by a stunning average of 55% a year to end-2028.

Vodafone’s latest major results (H1 fiscal year 2026) point to a business gaining significant operational and financial traction. Adjusted earnings before interest, taxes, depreciation, amortisation, and leases (EBITDAaL) increased 5.9% year on year to €5.7bn (£4.9bn). This was supported by broad‑based service‑revenue growth and early benefits from the integration of Three UK.

Its subsequent Q3 numbers, released on 5 February 2026, showed similar momentum, with group service revenue rising 7.3% to €8.5bn. Germany continued to improve, supported by higher wholesale revenue, while Africa saw 13.5% service growth. Overall, group adjusted EBITDAaL increased 2.3% to €2.8bn.

Vodafone added that it remains on track to deliver at the upper end of our guidance range for both profit and cash flow. For the former, the range is €11.3bn-€11.6bn, while for the latter it is €2.4bn-€2.6bn. It also announced a new €500m share buyback, which tends to support share price gains.

Are the shares undervalued?

In asset terms, price is just a function of whatever the market is willing to pay at any given time. But value reflects the fundamentals of the underlying business.

The key to long-term investors’ profits over time lies in recognising this gap and exploiting it. This is because asset prices (including shares) tend to trade to their ‘fair value’ over the long run.

The discounted cash flow (DCF) method identifies a share’s fair value by projecting a firm’s future cash flows and then discounting them back to today.

DCF modelling results vary according to the various inputs used — some more bullish than mine, others more bearish. However, based on my DCF assumptions — including a 7.5% discount rate — Vodafone shares are 48% undervalued at their current £1.09 price.

This implies a fair value for the stock of around £2.10 — nearly double where the shares trade today.

Given the tendency for prices to converge with value over time, this suggests a potentially superb buying opportunity to consider today if those DCF assumptions prove correct.

My investment view

I already have another telecoms sector stock — BT — and adding another would unsettle the risk-reward balance of my portfolio.

However, for investors without this problem, I think the stock is worthy of serious attention. It is deeply undervalued at a time of strong operational momentum.

This creates a compelling asymmetry: limited downward potential versus meaningful upward potential, if the turnaround continues.

And with the shares trading at barely half my estimate of fair value, I think patient long‑term investors may find this a rare opportunity hiding in plain sight.

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Let’s look at three examples that are outpacing the FTSE 100 and might just continue doing so for the remainder of 2026.

Turnaround dividend stock

Despite Vodafone‘s (LSE: VOD) chequered history when it comes to distributing cash to its owners, investors have long gravitated towards the telecommunications behemoth for their dividend fix. But lately, this market juggernaut has been behaving almost like a growth stock! A 15% gain in 2026 compares favourably to the index’s 9% and adds to the super momentum seen in 2025.

Of course, the rise in its share price has reduced the dividend yield. Right now, this stands at 3.6% — fairly modest when other stocks in the FTSE 100 are yielding up to 8%. But it’s more than a bog standard index tracker would currently earn (2.9%).

After a tough few years, it looks like investors are warming to this company’s strategy of selling its non-core businesses and focusing more on growth markets. Indeed, the completion of its merger with Three UK last year seemed to mark an inflection point in sentiment.

My chief concern remains the massive debt load. Yes, it’s lower than a few years ago. But ongoing and fierce competition could make a substantial reduction unlikely for now.

Future proof

Also on a charge is mining giant Rio Tinto (LSE: RIO). Its shares have performed even better — rising over 20% since the start of January — helped by a surging copper price.

Despite this great performance, there have been a few volatile days in the mix. A couple of weeks ago, Rio’s price dropped as it posted flat annual earnings and missed analyst expectations due to weaker iron ore prices. This highlights the bumpy ride that all investors in commodities can expect.

Still, the likely huge demand for the red metal in the years ahead as the world migrates towards to cleaner energy sources surely bodes well for Rio as both a long-term income and growth play.

Again, the dividend yield isn’t quite what it was. But 4.6% is hardly bad. And although those cash distributions can never be guaranteed, they look set to be covered by expected profit.

Reliable income

Yielding 3.5%, power provider National Grid (LSE: NG.) completes our trio of income stocks doing well. Up 20% so far, this traditionally ‘boring business’ has now hit a record high.

Now, I’ve always regarded this as a potential cornerstone of any dividend-focused portfolio. In addition to regular-if-modest hikes to the total amount of cash returned, our constant need for gas and electricity makes this one of the most defensive businesses around.

It’s not a slam-dunk investment, though. Like Vodafone, the Grid has a huge debt pile, primarily due to the cost of maintaining its infrastructure. A price-to-earnings (P/E) ratio of 18 also makes National Grid shares the most expensive of the three.

As more money seems to be flooding into UK and European stocks from across the pond, however, I think the price might just continue going up.

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