Vodafone (LSE:VOD) shares are on a bit of a rampage right now, climbing by almost 50% in the last 12 months. That’s quite a significant shift for a FTSE 100 stock that, until recently, has been stuck on a multi-year downward trajectory.

Of course, past performance doesn’t guarantee future returns. So, can this rally continue? Or is it too late to jump on board the gravy train?

The bull case

There are a variety of factors at play driving up the Vodafone share price in recent months. However, arguably the two biggest driver is the group’s performance improvement in its core German market and the UK.

This segment has been in decline for years, courtesy of lacklustre customer satisfaction and fierce competition. However, following the group’s latest results, management has finally plugged the leak, with its services revenue returning to growth, albeit by a small margin.

Meanwhile, earlier in the year, Vodafone’s recently completed merger with Three UK has created a welcome but expected sales and earnings surge. And with integration seemingly making good progress, UK operations appear well-positioned for continued momentum in 2026.

With 5G and fibre optic rollouts across both key markets offsetting the loss of legacy services, alongside further Three UK synergies, management has projected underlying free cash flow for its 2026 fiscal year (ending in March) to remain stable near €2.4bn to €2.6bn.

Beyond supporting the 4.1% dividend yield, this continued cash generation enables management to continue steadily chipping away at the group’s substantial pile of debt.

With all that in mind, it’s not surprising that Vodafone shares have been climbing. And if the progress continues, 2026 could indeed deliver further gains for shareholders.

What could go wrong?

Every investment carries risk. And Vodafone is no exception. While operations in Germany have undoubtedly improved, it’s important to recognise that the competition is still heating up.

Deutsche Telekom and Telefonica are similarly investing heavily in their own fibre optic infrastructure. At the same time, while the group’s mobile average revenue per user (ARPU) has seen a significant slowdown in churn, this has seemingly been driven primarily by promotional discounts – a strategy that limits earnings growth.

Its UK operation also has its own fair share of challenges to overcome. The Three UK merger made Vodafone the biggest network operator in the country. But the deal was only permitted by regulators after agreeing to potentially restrictive price caps over the next three years.

But even if everything goes smoothly and free cash flow volumes remain stable, debt reduction efforts could ultimately limit management’s ability to invest in new growth initiatives – potentially creating opportunities for its less financially burdened rivals.

The bottom line

While it’s still early innings, it seems that Margherita Della Valle is finally delivering the turnaround that her predecessors promised and failed to achieve.

There are still a lot of challenges to overcome. But with an encouraging outlook for 2026, Vodafone shares could indeed be worth a deeper dive by investors looking to capitalise on a potentially lucrative turnaround.