The BT (LSE: BT.A) share price has endured a bit of a roller-coaster ride in recent times. So what’s happening and could a recent drop represent a buying opportunity?
Why has the BT share price struggled?
As I write, BT shares are trading for 117p. At this time last year, they were trading for 127p, which is a 7% drop over a 12-month period. More recently, they have dropped 26% from 160p in mid-April to current levels. Market volatility and macroeconomic issues have contributed, but is there more to it than that?
Firstly, as I alluded to a moment ago, economic uncertainty has impacted the BT share price. In fact, this has hampered many stocks across many global markets. Soaring inflation as well as rising interest rates have caused fears of a recession. This could detrimentally impact demand for BT’s services.
Next, rising costs including materials, labour, and energy have put pressure on BT’s margin levels.
Another issue, which is a key risk I’m bearing in mind for BT’s investment viability, is debt. When interest rates are high, this debt can be costlier to service, and impact a balance sheet as well as investor returns. BT’s debt is close to £20bn. This is higher than the firm’s market-cap of £11.6bn!
Finally, competition in the telecoms sector is still something BT needs to contend with, despite its enviable market position and profile.
My thoughts
So I’ve covered the doom and gloom. But I do see positives when it comes to the current BT share price and any investment opportunity.
In the UK, when I think of telecoms, BT springs to mind instantly. It reminds me of my childhood (many moons ago now, I must admit) with BT-branded home phones and believing everything to do with phones and the internet was linked to BT. That’s brand power, in my opinion.
With the continued rollout of fibre internet and 5G, BT is in an advantageous position to capitalise. However, it must be noted that costs linked to employing this infrastructure and tech could be high. This could impact the BT share price further.
Next, BT shares look good value for money to me right now on a price-to-earnings ratio of seven. This is much lower than the FTSE 100 average of 14 and lower than most of its peers.
In addition to this, BT shares would boost my passive income with a dividend yield of 6.6%. However, I’m smart enough to understand dividends are never guaranteed. With BT having a lot of debt on its books, this dividend could be cancelled at any time.
Taking everything into account, I’m not convinced that buying BT shares would boost my holdings. I’m concerned by its debt levels, which are a red flag for me. Moreover, a lack of revenue growth and recent leadership changes don’t fill me with confidence.
I’m going to sit on the sidelines for now. I’ll keep revisiting my position and see what happens to the BT share price and events surrounding the business.
