What could the BT share price be worth in 5 years?

This Fool explains why he thinks the BT share price could be worth 40% more than its current value in five years as growth continues.

| 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.

Elevated view over city of London skyline

Image source: Getty Images

Five years ago, the BT (LSE: BT.A) share price was worth 361p. Today, it is worth less than half of that. 

In the stock market, past performance should never be used as a guide to future potential. Just because the stock has under or outperformed the market in the past does not necessarily mean it will continue to do so. 

So with that in mind, I have been trying to determine how much the BT share price could be worth five years from now and whether I should buy the shares based on this forecast.

Making progress

Over the past few quarters, my opinion of BT has changed significantly. I have been encouraged by the company’s capital spending plans and growth initiatives, even though I am aware it could be a while before these initiatives start to show on the firm’s bottom line. 

However, last week the organisation published an update I did not expect. The group’s Openreach full-fibre broadband offering is now reaching 6m homes. Connection costs are averaging £250 to £350 per property, which is below initial expectations

As a result, management believes the corporation has the financial capacity to pursue the rest of the rollout to an additional 5m homes without taking on a partner. 

On top of this development, the company has also hit its £1bn cost savings target 18 months early. 

Overall, BT’s growth plans are evolving quicker, and costs are falling faster, than projections. 

After considering all of the above, I am pretty excited about the outlook for BT. The company has also restored its dividend after cutting it to save money to fund the broadband rollout. After 18 months, the group is going to pay an interim dividend of 2.3p to shareholders. 

BT share price outlook

If BT can continue to meet or outperform expectations, I think the outlook for the stock is bright. 

The City believes the company will earn 20.6p per share in its 2023 financial year (two years from now). If it does, the stock is currently trading at a forward price-to-earnings (P/E) multiple of just 6.9. Of course, there is a lot that could go wrong over the next two years. There is no guarantee whatsoever the organisation will hit these projections. Challenges the corporation will have to overcome include rising costs, regulatory headwinds, and competition from businesses like Virgin Media.

Nevertheless, I think the numbers highlight the group’s potential. 

Five years ago, when the market valued BT more highly than it does today, the shares were changing hands at a P/E of around 10.

Based on this, if BT does hit the City’s growth expectations for the next two years, the stock could return to this valuation. If it does, the stock could increase in value by more than 40% from current levels, excluding dividends. 

Based on these metrics, I would buy the stock for my portfolio today, considering its valuation, growth potential, and the group’s restructuring progress.

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 considered so you should 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

Warren Buffett at a Berkshire Hathaway AGM
Investing Articles

This one Ben Graham investment principle could make you richer

Legendary investor Warren Buffett applies a key principle he learnt from Ben Graham. Our writer explains why he thinks it…

Read more »

Tanker coming in to dock in calm waters and a clear sunset
Investing Articles

Is the Tullow Oil (TLW) share price poised to take off?

The Tullow Oil (TLW) share price has been more volatile than some of its bigger peers this year. But is…

Read more »

Middle-aged white man wearing glasses, staring into space over the top of his laptop in a coffee shop
Investing Articles

Should I buy Royal Mail shares while they’re under 300p?

Royal Mail's share price has come down a long way in 2022 and is currently under 300p. Edward Sheldon looks…

Read more »

Smiling senior white man talking through telephone while using laptop at desk.
Investing Articles

I’d forget buy-to-let and buy these REITs for passive income!

I think REITs are a great way to generate healthy streams of passive income. Here's why I think they're a…

Read more »

Content white businesswoman being congratulated by colleagues at her retirement party
Investing Articles

How I’d invest £5,000 in FTSE 100 shares to aim for a million

The FTSE 100 is home to many potential gems. Our writer considers if he can reach millionaire status by uncovering…

Read more »

Smiling white woman holding iPhone with Airpods in ear
Investing Articles

How I’m aiming to become a Stocks and Shares ISA millionaire!

The Stocks and Shares ISA is an excellent vehicle for investments. In fact, many investors have become ISA millionaires. Here's…

Read more »

Mixed-race female couple enjoying themselves on a walk
Investing Articles

The Scottish Mortgage share price is on the up! Here’s why I’d buy

After a poor first half of the year, the Scottish Mortgage share price is beginning to rise. Here, this Fool…

Read more »

Middle-aged white man wearing glasses, staring into space over the top of his laptop in a coffee shop
Investing Articles

Should I be grabbing cheap Lloyds shares?

Lloyds shares have underperformed in recent years. Here, this Fool explains why he's still considering the stock for his portfolio.

Read more »