Plenty of companies on the FTSE 100 look like incredibly good value for money at the moment. And with the index gaining momentum, I see a number of opportunities out there.
However, investors must be wary not to fall into value traps. One stock I plan to avoid like the plague is Vodafone (LSE: VOD)
Share price performance
The stock’s performance has been largely uninspiring in recent times. In the last five years, the share price has fallen by 52.3%. This year it has seen 3.9% shaved off its value. For comparison, the Footsie is up 3.7%.
Vodafone was Europe’s largest company by valuation in 2000. For shareholders, this downward trajectory would no doubt have been painful to watch.
Other concerns
Of course, a falling share price doesn’t instantly mean a stock isn’t investment-worthy. In fact, it can sometimes hint that it’s the best time to buy. Nevertheless, I see other red flags with Vodafone.
For example, take its dividend yield. As I write, it sits at a whopping 11.5%. That’s mighty impressive and the largest offering on the FTSE 100. However, it has been pushed significantly higher due to its declining share price.
With questions being asked about its sustainability, these have now been answered. Vodafone recently announced that it will be cutting it in half from 2025.
That’s not to say I don’t agree with management’s decision to slash the yield. This will free up around £1bn a year in cash. But one of the main attractions for me of Vodafone has been its meaty yield. That’s now gone.
There are other issues too. The business is sitting on a monumental pile of debt. This stood at €36.2bn as of September 2023. We all know the effect high interest rates will have on this.
Changing fortunes?
Even so, I’m not writing off a turnaround and I can understand why some investors like the look of Vodafone. That’s especially true since CEO Margherita Della Valle took over the business last year.
She’s made a strong effort to slim down the group’s operations as Vodafone vies to restructure. It’s the right move, the business needs to become leaner.
Vodafone disposed of its operations in Spain for around €5bn. On top of that, its latest announcement revealed that it had entered a binding agreement for the sale of its Italian business to Swisscom.
The deal is worth €8bn and is expected to close in the first quarter of 2025. With the funds it generates, the firm intends to return €4bn to shareholders via share buybacks.
Vodafone is hopeful that this move will also bring its net debt position closer to 2.25 times earnings. That will help improve its credit rating.
Not for me
The stock market is unpredictable. The business could turn around its fortunes and I can see why some investors deem Vodafone an attractive investment today at just 67.04p.
But it’s one I’ll be avoiding. Its restructuring plans are risky, in my opinion. And its much-prized dividend falling is another reason for me to steer clear. All in all, I see much better opportunities out there for investors to consider today.
The post I wouldn’t touch this FTSE 100 stalwart with a bargepole appeared first on The Motley Fool UK.
Pound coins for sale — 31 pence?
This seems ridiculous, but we almost never see shares looking this cheap. Yet this Share Advisor pick has a price/book ratio of 0.31. In plain English, this means that investors effectively get in on a business that holds £1 of assets for every 31p they invest!
Of course, this is the stock market where money is always at risk — these valuations can change and there are no guarantees. But some risks are a LOT more interesting than others, and at The Motley Fool we believe this company is amongst them.
What’s more, it currently boasts a stellar dividend yield of around 10%, and right now it’s possible for investors to jump aboard at near-historic lows. Want to get the name for yourself?
See the full investment case
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Charlie Keough has no position in any of the shares mentioned. The Motley Fool UK has recommended Vodafone Group Public. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
