Vodafone’s (LSE: VOD) share price looks far too low to me, given the scale and stability of the business.
Years of restructuring, asset sales and debt reduction have left it leaner, more focused and better positioned for cash‑flow growth.
Yet the market continues to price it as if the old, sprawling version still exists, creating what looks a compelling undervaluation opportunity.
So where should the stock be priced?
What are the underlying growth drivers?
Share price gains for any stock are ultimately powered by sustained profit growth over time. A risk here for Vodafone is ongoing competitive pressure in key European markets. That could cap its pricing power and slow any recovery in service‑revenue growth.
Another is any higher‑than‑expected network investment requirements — particularly around 5G rollout and fibre upgrades. These could squeeze free cash flow and delay the full force of the profits rebound.
However, analysts forecast that its profits will increase by a whopping average of 43% a year to end-2029 at minimum. In its 2026 results released on 12 May, the firm said: “We are entering a new chapter as a simpler and stronger business”.
Management added that the firm will be more focused on Germany, Great Britain and Africa. It expects this streamlined structure to support stronger growth after full‑year earnings landed at the top end of guidance.
This turnaround is echoed in the firm’s operating profit, which swung from a €0.4bn loss in 2025 to a €2.8bn gain in 2026.
What’s its real value?
Savvy long-term investors are ultimately buying a stream of future cash flows, not 12‑month mood swings. This is why discounted cash flow (DCF) modelling is far more useful here than short‑horizon forward relative valuations or analyst targets (which also focus on 12 months ahead only).
DCF analysis projects a company’s ability to generate cash over many years. It then values those flows in today’s terms to ascertain the stock’s ‘fair value’ now. This anchors the share price to underlying economic reality rather than near‑term market sentiment.
Different analysts DCF modelling outcomes may vary if they rely on different assumptions. Based on my own framework — including a 7.4% discount rate — Vodafone is 66% undervalued at its present £1.12 price.
That implies a fair value of £3.29 — nearly three times the current price. So if asset prices (including shares) continue their historical trend of converging to fair value, this could be an excellent buying opportunity if those DCF assumptions hold good.
My investment view
I already hold shares in BT, so I do not want to distort the risk/reward balance of my portfolio by adding another telecoms stock.
But if I did have scope for that, I would be buying Vodafone now. It has exceptional profit growth projections, and this should support share price gains over time so I feel it is worth considering .
Meanwhile, I have my eye on other shares that are also deeply underpriced, and which offer high dividends too.
Simon Watkins owns shares in BT.
