The stock of Vodafone Group PLC (NAS:VOD, 30-year Financials) shows every sign 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 $18.38 per share and the market cap of $51.3 billion, Vodafone Group PLC stock is estimated to be 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, which is estimated to grow 0.95% annually over the next three to five years.
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Companies with poor financial strength offer investors a high risk of permanent capital loss. To avoid permanent capital loss, an investor must do their research and review a company's financial strength before deciding to purchase shares. Both the cash-to-debt ratio and interest coverage of a company are a great way to to understand its financial strength. Vodafone Group PLC has a cash-to-debt ratio of 0.18, which which ranks worse than 67% 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:
Companies that have been consistently profitable over the long term offer less risk for investors who may want to purchase shares. Higher profit margins usually dictate a better investment compared to a company with lower profit margins. Vodafone Group PLC has been profitable 6 over the past 10 years. Over the past twelve months, the company had a revenue of $51.9 billion and earnings of $0.038 a share. Its operating margin is 12.49%, which ranks in the middle range of the companies in Telecommunication Services industry. Overall, the profitability of Vodafone Group PLC is ranked 6 out of 10, which indicates fair profitability. 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 -5%, which ranks worse than 75% of the companies in Telecommunication Services industry. The 3-year average EBITDA growth is 7.4%, which ranks in the middle range of the companies in Telecommunication Services industry.
Another method of determining the profitability of a company is to compare its return on invested capital to the weighted average cost of capital. 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. When the ROIC is higher than the WACC, it implies the company is creating value for shareholders. For the past 12 months, Vodafone Group PLC's return on invested capital is 0.52, and its cost of capital is 2.43. 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) appears 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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