Is Vodafone a Worthwhile Investment?

With shares of Vodafone (NYSE:VOD) trading around $30, is VOD an OUTPERFORM, WAIT AND SEE or STAY AWAY? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

T = Trends for a Stock’s Movement

Vodafone is a mobile communications company that provides a range of communication services and operates across the globe. The firm’s products and services include: voice messaging, data, fixed-line solutions, and devices to assist customers in meeting their total communications needs. Vodafone operates in three geographic regions: Europe, Africa, and Central Europe; Asia Pacific; and the Middle East. The firm has an investment in the U.S.-based Verizon Wireless (NYSE:VZ).

Just recently, Vodafone reported its first-quarter earnings that were on par with analyst expectations. The company has not been doing very well due to the recession in Europe as well as increased regulations. Also, Vodafone is suing Telecom Italia for 1 billion euros, citing a loss of customers, restricted ability to grow its fixed-line business, and its having to pay artificially high costs to compete in the Italian telecom space.

T = Technicals on the Stock Chart are Strong

Vodafone stock has been fairly volatile over the last year. The stock is now trading near highs for the year so it may need to spend some time here before establishing its next move. Analyzing the price trend and its strength can be done using key simple moving averages. What are the key moving averages? The 50-day (pink), 100-day (blue), and 200-day (yellow) simple moving averages. As seen in the daily price chart below, Vodafone is trading above its rising key averages which signal neutral to bullish price action in the near-term.

VOD

(Source: Thinkorswim)

Taking a look at the implied volatility (red) and implied volatility skew levels of Vodafone options may help determine if investors are bullish, neutral, or bearish.

Implied Volatility (IV)

30-Day IV Percentile

90-Day IV Percentile

Vodafone Options

21.33%

33%

32%

What does this mean? This means that investors or traders are buying a minimal amount of call and put options contracts, as compared to the last 30 and 90 trading days.

Put IV Skew

Call IV Skew

August Options

Flat

Average

September Options

Flat

Average

As of today, there is an average demand from call buyers or sellers and low demand by put buyers or high demand by put sellers, all neutral to bullish over the next two months. To summarize, investors are buying a minimal amount of call and put option contracts and are leaning neutral to bullish over the next two months.

On the next page, let’s take a look at the earnings, revenue growth rates, and the conclusion.

E = Earnings Are Mixed Year-Over-Year

Rising stock prices are often strongly correlated with rising earnings and revenue growth rates. Also, the last four earnings announcement reactions help gauge investor sentiment on Vodafone’s stock. What do the last four yearly earnings and revenue growth figures for Vodafone look like and more importantly, how did the markets like these numbers?

2013 Q1

2012 Q1

2011 Q1

2010 Q1

Earnings Growth (Y-O-Y)

739.36%

-32.34%

-88.07%

N/A

Revenue Growth (Y-O-Y)

-5.74%

-1.96%

8.87%

N/A

Earnings Reaction

0.33%

-2.25%

3.12%

N/A

Vodafone has seen mixed earnings and revenue figures over the last four quarters. From these numbers, the markets have been optimistic about Vodafone’s recent earnings announcements.

P = Excellent Relative Performance Versus Peers and Sector

How has Vodafone stock done relative to its peers, Verizon (NYSE:VZ), AT&T (NYSE:T), T-Mobile (NYSE:TMUS), and sector?

Vodafone

Verizon

AT&T

T-Mobile

Sector

Year-to-Date Return

21.04%

15.95%

5.61%

23.89%

17.41%

Vodafone has been a relative performance leader year-to-date.

Conclusion

Vodafone provides telecommunications services and related products around the world. The company is involved in a legal battle over telecom problems in its Italian business. The stock has been volatile this year and is now trading near highs for the year. Recently, earnings and revenue figures have been mixed, however, investors have been optimistic about the company. Relative to its peers and sector, Vodafone has been a year-to-date performance leader. WAIT AND SEE what Vodafone does at current prices.

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