What’s next for the BT share price?

After two years of volatility, the BT share price looks appealing to this Fool at current levels as an income and growth investment.

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Over the past two years, the BT (LSE: BT.A) share price has been on a roller-coaster ride.

The stock dropped to a multi-year low of below 100p in September 2020. It went on to double to more than 200p in June 2021. After falling again to below 140p, the stock is currently trading at around 180p per share.

During this time, as investor sentiment has deteriorated, the company’s fundamental performance has actually improved.

Growth plans

Thanks to growth initiatives brought in by management, the company is starting to rebuild trust with its customers. It is also trying to beat off competitors in the fibre broadband market by investing significant sums in building out its network.

These initiatives are producing results. City analysts expect the company’s earnings per share to grow in its current financial year. If it hits this projection, it will be the first time since 2016.

Unfortunately, they do come with some drawbacks. Most importantly, these initiatives are expensive, and they are hitting investor cash returns.

And this seems to be one of the main reasons investors have been avoiding BT shares recently. The corporation’s capital spending commitments are hurting its dividend credentials.

As the enterprise continues to invest in its network and customer offering, I do not think investor returns will take priority any time soon. 

Spending plans may have to be revised higher if the company’s competitors also increase their capital spending commitments in order to meet BT’s proposition. These are the most significant risks and challenges the firm faces today. I think the market will continue to focus on these risks until the business has passed its capital spending phase.

Still, I think this is a bit of a double-edged sword. The enterprise needs to spend more to entice customers back to the brand. The spending is clearly yielding results, and that is why I think it is the right course for the business right now. I do not believe management should put shareholders first when the company needs investment. 

Therefore, I think focusing on the firm’s dividend credentials alone is a big mistake. 

BT share price outlook 

Considering all of the above, I think it is quite difficult for me to assess what is next for the BT share price.

I think the stock will remain volatile until the business has entered a more stable growth environment.

Still, I think this could be an opportunity for long-term investors like myself to buy shares in this telecoms giant at a relatively low price. As such, I would be happy to buy the stock for my portfolio today as a long-term growth play.

The investment may remain volatile in the near term. Still, over the next 10 years, I think the company’s competitive advantages should help it navigate the telecoms market and emerge stronger on the other side.

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.

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