I was right about the BT share price. This is what I’d do now

Rupert Hargreaves explains why he thinks the BT share price still offers value and growth potential, despite its recent slump.

| 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.

sdf

For many years, I thought the BT (LSE: BT.A) share price should be avoided. There were many reasons why I believed the company wouldn’t be a great portfolio addition. 

The biggest of these was its sizable debt pile, which threatened the organisation’s long-term growth potential. The group’s paying out hundreds of millions of pounds every year in interest on its debt. That’s money not being spent on growing the business. 

However, over the past two years, the group has undergone a significant change. It’s really focused efforts on growth and has been working to improve customer service and efficiency. 

Following this shift in strategy, I changed my opinion of BT. Initial results suggest the strategy’s working and, last year, the BT share price responded positively. It nearly doubled between October 2020 and June of this year. 

Unfortunately, shares in the telecommunications giant have recently fallen back. So I think this could be an opportunity. 

BT share price opportunity

I decided it was time to buy shares in BT around the middle of last year. I thought the company’s valuation was too cheap, considering its expansive footprint and restructuring potential. 

This turned out to be the right call. As highlighted above, the stock doubled between the end of last year and the beginning of 2021.

Despite the recent performance of the BT share price, I’m still a buyer. It’s difficult to explain why the stock’s performed so poorly since the end of June when it topped out at just over 200p. Since then, the shares have been in retreat. 

Granted, BT’s trading update for the three months to the end of June wasn’t particularly inspiring. Revenues declined 3% and pre-tax profit fell 4%.

However, adjusted earnings before interest, tax, depreciation and amortisation (EBITDA) rose 3%. This can be a better way to evaluate business performance as it ignores the high depreciation costs, which are generally a factor of asset-heavy businesses. 

Spooking markets

While EBITDA rose, net debt and capital spending also increased, which seems to have spooked markets. I’m not too concerned about these factors at this stage.

BT is spending massive amounts to build out its fibre broadband network, which is certainly required. This should yield results over the next few years, which should allow management to start reducing debt. 

With this being the case, I’d use the recent declines of the BT share price to add the stock to my portfolio as an attractive valuation. I think investors are concentrating too much on short-term headwinds rather than the company’s long-term outlook. 

Still, I’ll be keeping a close eye on the company as we advance because it has lost its way in the past. Factors such as increasing competition and higher interest rates could make life harder for management. Therefore, I can’t take its growth for granted. 

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.

Rupert Hargreaves has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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

Number three written on white chat bubble on blue background
Investing Articles

Just released: the 3 best growth-focused stocks to consider buying in July [PREMIUM PICKS]

Our goal here is to highlight some of our past recommendations that we think are of particular interest today, due…

Read more »

Portrait of a boy with the map of the world painted on his face.
Investing Articles

Warren Buffett’s Berkshire Hathaway dumped this growth stock. Here’s why I won’t

Eyebrows were raised when Warren Buffett's company invested in this Latin American fintech disruptor a few years ago. But now…

Read more »

Fireworks display in the shape of willow at Newcastle, Co. Down , Northern Ireland at Halloween.
Investing Articles

£15k to spend? 3 UK shares, investment trusts and ETFs to consider for a £1,185 second income

By harnessing a range of different dividend stocks, I'm confident this mini portfolio might pay a large long-term second income.

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

Is Tesla stock about to crash?

Tesla stock was on the slide today, shedding around $80bn in market value. What's going on with the electric vehicle…

Read more »

Thoughtful man using his phone while riding on a train and looking through the window
Investing Articles

Should British investors consider buying Apple stock while it’s down 14% in 2025?

Apple stock has underperformed in 2025, falling more than 10%. Is this the buying opportunity UK investors have been waiting…

Read more »

Two business people sitting at cafe working on new project using laptop. Young businesswoman taking notes and businessman working on laptop computer.
US Stock

2 AI growth shares that I think are still undervalued

Jon Smith flags up two AI growth shares that aren't as overhyped as some peers, making them appealing for him…

Read more »

Thoughtful man using his phone while riding on a train and looking through the window
Investing Articles

Where is the next Nvidia stock right now?

Nvidia stock has delivered jaw-dropping gains. Here are 10 growth shares that have the potential to also produce big returns…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

Could these FTSE 100 stocks explode in July?

Looking for FTSE stocks that could catch fire this month? Here are the share price prospects of two popular London…

Read more »