Is Vodafone a Solid Investment?

With shares of Vodafone (NASDAQ:VOD) trading around $39, 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 cover 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.

Regulators in India have approved Vodafone Group PLC’s bid to take complete ownership of its Indian unit after the government there changed a rule in August that now allows telecom companies to have complete ownership of their local divisions in India rather than restricting that ownership to 74 percent, the New York Times reports. Economic Affairs Secretary Arvind Mayaram told the Times on Monday that India’s foreign investment regulator has approved Vodafone’s plan to take full control of Vodafone India, but the deal still needs to be approved by India’s federal cabinet. The acquisition of the remaining stake in Vodafone India will cost Vodafone Group $1.6 billion, per the publication.

T = Technicals on the Stock Chart Are Strong

Vodafone stock has been steadily rising over the past several years. The stock is currently trading near all time highs and looks poised to continue. 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

20.30%

93%

90%

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

Put IV Skew

Call IV Skew

January Options

Flat

Average

February 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 very significant 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 and revenue growth rates and the conclusion.

E = Earnings Are Mixed Quarter-Over-Quarter

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

2013 Q3

2013 Q2

2013 Q1

2012 Q4

Earnings Growth (Y-O-Y)

262.88%

N/A

739.36%

-32.34%

Revenue Growth (Y-O-Y)

2.49%

N/A

-5.74%

-1.96%

Earnings Reaction

-0.02%

0.23%

0.33%

-2.25%

Vodafone has seen increasing earnings and mixed revenue figures over the last four quarters. From these numbers, the markets have been pleased with 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 (NASDAQ:TMUS), and sector?

Vodafone

Verizon

AT&T

T-Mobile

Sector

Year-to-Date Return

55.82%

13.23%

3.74%

69.39%

36.54%

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

Conclusion

Vodafone provides telecommunications services and related products around the world. Regulators in India have approved Vodafone Group PLC’s bid to take complete ownership of its Indian unit. The stock has been moving higher in recent years and is now trading near all time highs. Over the last four quarters, earnings have been increasing while revenues have been mixed, which has generally pleased investors in the company. Relative to its peers and sector, Vodafone has been a year-to-date performance leader. Look for Vodafone to OUTPERFORM.

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