Since selling off its stake in the joint venture with Verizon, Vodafone’s (LSE: VOD) share price has delivered a very disappointing performance.
Indeed, in the last six months alone it has fallen by 10% as investors have become less keen on companies, such as Vodafone, that have a relatively large amount of exposure to the troubled European economy.
As a result of this weak sentiment, though, could now prove to be the perfect time to add Vodafone to Foolish portfolios? Or, are shares in the company likely to continue their recent downward trajectory?
European Panic
The current situation in the Eurozone is worrying investors across the globe. Unlike their US and UK counterparts, the ECB has done little thus far to keep at bay the threat of deflation. Instead, it has chosen to inflict painful austerity measures across most of its southern parts, which is having the effect of hurting the entire region and the companies that operate within it. As one of the world’s largest markets, its impact on global stocks remains significant.
Vodafone’s Exposure
Of course, Vodafone is one such company. Today, it is very much focused on the Eurozone, with its overarching strategy being to buy high-quality European assets at distressed prices. In theory, this is extremely sound and, with a generous dollop of patience, could add a substantial amount of value for investors in the long run.
The problem, though, is that the short term will inevitably be very painful. Just like any investor, Vodafone simply cannot call the lowest ebb of the Eurozone’s troubles and so is exposed to the short term challenges that are affecting the region. This could mean that profits disappoint in the short term and that Vodafone’s strategy is called into question by shareholders.
Looking Ahead
However, when taking a long term view, further challenges in the Eurozone could prove to be a positive thing for Vodafone. That’s because, if it is able to continue with its plan of buying high quality European assets at distressed prices, it should be able to buy in at even lower prices. In other words, if you aim to ‘buy low’, a stock market fall is a good thing – in the long run at least.
So, while short-term panic in Europe may cause investors (and Vodafone) a great deal of nervousness, it could prove to be a blessing in disguise in the long run. This is particularly true if it forces the Eurozone’s power brokers to address the imbalances within the region that appear to be a major cause of its ongoing problems.
Certainly, further problems in the Eurozone will cause disappointment for investors. However, with a sound balance sheet and a top notch yield of 5.8% on offer, Vodafone’s shareholders can afford to be very patient. This means that the present challenges could present a superb opportunity to buy Vodafone at an even better price.