Is Vodafone a Buy?

With shares of Vodafone (NASDAQ:VOD) trading around $29, 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 operating across the globe providing a range of communications services. It offers a range of products and services, including voice, messaging, data and fixed-line solutions and devices to assist customers in meeting their total communications needs. It operates in three geographic regions: Europe, Africa and Central Europe; Asia Pacific, and the Middle East, and has an investment in Verizon Wireless in the United States. Consumers and companies across the globe aim to connect and interact at increasing rates. With such a large global presence, look for Vodafone to be a main communications provider around the world.

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T = Technicals on the Stock Chart are Mixed

Vodafone stock has been stagnant for most of the last several years. However, the stock has just popped higher and may be wanting to break above a multi-year range. 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

25.99%

3%

0%

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

Put IV Skew

Call IV Skew

June Options

Flat

Average

July Options

Flat

Average

As of today, there is an average demand from call and put buyers or sellers, neutral over the next two months. To summarize, investors are buying a very small amount of call and put option contracts and are leaning neutral over the next two months.

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

E = Earnings Are Decreasing Quarter-Over-Quarter

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

2012

2011

2010

2009

Earnings Growth (Y-O-Y)

-32.34%

-88.07%

N/A

N/A

Revenue Growth (Y-O-Y)

-1.96%

8.87%

N/A

N/A

Earnings Reaction

-2.25%

3.12%

N/A

N/A

Vodafone has seen decreasing earnings and and mixed revenue figures over the last couple of years. From these figures, the markets have been a bit confused with Vodafone’s recent earnings announcements.

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P = Average Relative Performance Versus Peers and Sector

How has Vodafone stock done relative to its peers, Verizon (NYSE:VZ), AT&T (NYSE:T), Sprint Nextel (NYSE:S), and sector?

Vodafone

Verizon

AT&T

Sprint Nextel

Sector

Year-to-Date Return

17.15%

20.08%

9.46%

29.19%

16.76%

Vodafone has been an average performer, year-to-date.

Conclusion

Vodafone provides essential communications products and services to consumers and companies across the globe. The stock has been part of a multi-year range but looks to be preparing for a breakout move higher. Over the last couple of years, earnings have decreased while revenue figures have been mixed which have sent mixed vibes to investors. Relative to its peers and sector, Vodafone has been an average year-to-date performer. WAIT AND SEE what Vodafone does in coming quarters.

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