Right now I’m looking at some of the most popular companies in the FTSE 100 to try and establish whether or not they have the potential to return to historic highs.
Today I’m looking at Vodafone (LSE: VOD) (NASDAQ: VOD.US) to ascertain if its share price can return to 440p.
Initial catalyst
Of course, before we can establish whether or not Vodafone can return to 440p, we need to figure out what caused it to reach this level in the first place. It would appear that Vodafone reached this high at the beginning of 2000, in part due to the general euphoria of the wider market amid the turn-of-the-century tech bubble.
However, 2000 was also a good trading year for Vodafone In particular, the company revealed within its 2000 full-year results that basic earnings per share were up 25% year-on-year. What’s more, the company’s number of customers had exploded 54% year-on-year and total group operating profit was up a staggering 161%.
With these impressive growth figures, investors were prepared to pay a premium for Vodafone’s shares. Indeed, at a price of 440p, the company was trading at a P/E of 94, which is actually not that expensive after taking into account the fact that that the company’s net profit was expanding at a rate 140% per annum.
But can Vodafone return to its former glory?
Unfortunately, the days of the tech-bubble are behind us and it is unlikely that investors will place such a high valuation on Vodafone’s shares again anytime soon.Â
That said, Vodafone is now a bigger company than it was during 2000. For example, City analysts expect the company to report earnings per share of 14.3p for 2014, three times the company’s reported earnings per share of 4.7p for 2000.
Still, while Vodafone is more profitable now than it was back during 2000, the company is struggling to grow and because of this, investors are unlikely to place a growth premium on the company any time soon. Indeed, City forecasts currently predict that Vodafone’s earnings will fall by around 20% during the next three years.
Foolish summary
All in all, while Vodafone is a larger, more profitable company now than it was back during 2000, the company is unlikely to make a return to 440p anytime soon.
Sadly, when Vodafone reached 440p, investors were placing a premium on the company’s electric growth rate but it does not look as if Vodafone will be able to return to a similar rate of growth anytime soon.
So overall, I feel that Vodafone cannot return to 440p.Â