FTSE 100 telecoms firm BT (LSE: BT-A) is up 40% over the last 12 months, yet its share price has been trimmed by over 10% in the past 30 days. I had a bearish outlook on the stock when I last examined it back in July. Here, I’m going to explain why I remain bearish on the stock that once traded for over 300p.
Rising debt
BT’s Q1 results showed a £409m rise in debt for the period, to over £18bn, and for me, this is the largest concern. While this was in part due to the impact of the pandemic, the firm also pinned it to a 63% rise in capital expenditure. BT said the rise was mainly due to investment in spectrum (BT’s ability to access suitable radio frequencies) along with spending on 5G infrastructure. As an investor who highlights the importance of a long-term outlook, it would be contradictory of me to not state the benefits this could provide for both the firm over a longer timeframe and for the BT share price.
However, BT has already taken the decision to suspend dividends, and this rise in debt further decreases the chance of investors seeing dividends soon. This squashes any hope of BT shares making me a passive income in the short term, and this is a factor that deters me from buying. While I think dividends will return, this issue puts me off.
Other issues persist with BT. As my fellow Fool Jabran Khan highlighted, it could be argued that the share price is expensive with a high price-to-book ratio of 140. This makes me hesitant to add BT to my portfolio.
Bullish outlook
But there are positives that I see with BT too. As I stated above, the short-term hit that may be taken due to large amounts of investment has the potential to benefit the share price in the long term. This could mean that this dip in price presents an opportunity for me to add the telecoms giant to my portfolio.
The firm recently announced that Adam Crozier would be joining as an independent non-executive director and chairman. Crozier is known for turning around various business’s fortunes, and he most recently displayed this through his seven-year tenure at ITV. His appointment, along with the dip in price, is a potentially persuasive factor for me to buy.
Why I’m not buying
Yet overall, I retain my bearish outlook on BT. The appointment of Crozier could put the firm back on the right path. And its large amount of investment may also prove to be beneficial in the long run. But if I look at performance over the past five years, a 60% drop in price shows that BT’s long-term track record is unimpressive. The large debt the firm finds itself with is a major factor in my bearish view. Regardless of a dip in the share price, I will not be buying BT.
