Here’s why I’m not buying the BT share price dip

Here, this Fool explains why he does not deem the 10% dip in the BT share price as an opportunity to add it to his portfolio.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

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.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Charlie Keough has no position in any of the shares mentioned. The Motley Fool UK has recommended ITV. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Investing Articles

2 powerful passive income stocks investors should consider snapping up

Building a passive income stream via dividend-paying stocks is possible, according to our writer, who details two picks to take…

Read more »

Silhouette of a bull standing on top of a landscape with the sun setting behind it
Investing For Beginners

This UK stock has gained 42% since I bought it, but I think it’s still a bargain

Jon Smith outlines his reasons for thinking that a UK stock he owns has the potential to keep rallying for…

Read more »

Investing Articles

1 under-the-radar value stock I’m eyeing up for returns and growth

This Fool is looking for quality stocks at bargain prices and reckons this potentially overlooked value stock could be a…

Read more »

Portrait of elderly man wearing white denim shirt and glasses looking up with hand on chin. Thoughtful senior entrepreneur, studio shot against grey background.
Investing Articles

National Grid shares have plunged — but if I’d bought 2 years ago, would I be in profit?

National Grid shares are about 22% lower than in May, but that may just be a small blip for long-term…

Read more »

Investing Articles

This FTSE 250 stock looks unmissable — but buying shares now could be a mistake for me!

It’s tough when a stock looks fundamentally sound, but there’s a cloud hanging over it. This is what’s happening with…

Read more »

A Black father and daughter having breakfast at hotel restaurant
Investing Articles

Raspberry Pi shares are piping hot! Should I invest right now?

Raspberry Pi shares are certainly bearing fruit for those lucky enough to have invested early. Have I missed the boat…

Read more »

Dividend Shares

How much passive income from stocks could I make with a £37k salary?

Jon Smith takes a look at how much passive income he could make by squeezing all the juice out of…

Read more »

Young female analyst working at her desk in the office
Investing Articles

The Ashtead share price falls on FY results. Is it a good long-term buy?

High interest rates are bad for companies with high debt, especially if it's growing. But the effect on the Ashtead…

Read more »