Investors in Vodafone (LSE: VOD) (NASDAQ: VOD.US) have had reason to cheer over the last six months. Thats because shares in the telecoms company have risen by 8% at the same time as the FTSE 100 has fallen by 7%. And, with a dividend yield of over 5%, Vodafone has outperformed the wider index by around 17% during the period.
Certainly, many investors may understandably feel that Vodafone is unlikely to continue such strong outperformance in the coming months. After all, profit taking may be expected after such a strong rise. However, there could be considerable profits ahead for holders of Vodafone shares, and now could be a perfect time to buy a slice of the company.
Changes In Europe
As a company that relies upon the European economy for a significant proportion of its revenue, Vodafone has suffered heavily in recent years from the sluggish performance of the region. While most other regions have come through the financial crisis, the Eurozone is stuck in neutral and has seemingly been unwilling to make the policy changes necessary to pull its economy out of anaemic levels of growth.
However, that could all change in the coming weeks and months, with the ECB apparently being on the verge of launching a quantitative easing (QE) programme. Not only could this boost sentiment in Europe-focused stocks (such as Vodafone), it could help to bolster the Eurozone economies and lead to higher profit growth for Vodafone moving forward.
A Bright Future
Even without the prospect of QE, Vodafone is forecast to increase its bottom line at a brisk pace. For example, it is expected to post profit growth of 6% next year, followed by a rise of 22% in the following year. This is an impressive rate of growth and, although Vodafone currently trades on a relatively high price to earnings growth (P/E) ratio of 34.7, when its growth rate is taken into account it equates to a price to earnings growth (PEG) ratio of 1.4, which is relatively appealing for such a stable company.
Furthermore, Vodafone has the potential to become a so-called quad play operator. For example, it is set to launch broadband and pay-tv offerings in the UK in the spring and has the financial firepower to make acquisitions in this space. In addition, a yield of 5.1% at its current price remains relatively appealing and means that Vodafones total return could remain ahead of that of the wider index during the course of 2015.
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Peter Stephens has no position in any shares mentioned. We Fools don’t all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.
