What happens if the BT share price drops below 100p?

The BT share price is close to 100p, and it hasn’t traded below here since 2009. Dr James Fox takes a closer look at the telecoms giant.

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The BT (LSE:BT.A) share price hasn’t fallen below 100p for 15 years. It represents something of a ‘support level’ for shares of the communications giant. So, with the FTSE 100 stock trading just above 100p, is this a good time to buy?

Support levels

Support levels represent price points at which a stock tends to find buying interest and resist falling further. These levels are often identified through technical analysis and indicate potential points of market reversal. Sometimes, as with 100p, it has less to do with technical analysis and more about it being a nice, round figure.

What if BT stock falls below 100p?

BT stock hasn’t traded below 100p since 2009. And while sentiment towards the company has changed significantly during the last 15 years — ups and downs — 100p continues to represent something of a support level.

Of course, that doesn’t mean it would be impossible for BT shares to fall below 100p — far from it. And if we did go below 100p, we could see the stock fall much further. Why’s that? Well, it could simply be a signal for investors to throw in the towel.

And clearly, given the direction of the share price, sentiment towards BT isn’t particularly strong. Investors are cautious about debt levels and slow earnings growth throughout the medium term. The company has also pledged billions on its fibre-to-the-premise (FTTP).

What does the City say?

When evaluating an investment opportunity, City and Wall Street analysts provide valuable insights. And according to the 18 analysts covering BT, the stock is significantly undervalued.

This consensus includes 10 Buy ratings, four Outperform, two Hold, one Underperform, and one Sell rating. Additionally, the average share price target for BT is currently 182.4p, representing a substantial 75.3% premium from the share price at the time of writing.

However, City and Wall Street analysts aren’t always right, and it’s important to discard older forecasts. Analysts’ forecasts are not always updated that frequently, so it can be best practice to only consider forecasts made within the last three months.

My take

BT is certainly not a ‘slam dunk’ buy, I feel. It’s got high and rising debt levels, a huge capex programme, and slow/stagnating earnings growth. It also operates in a fairly slow-moving economy — the UK.

However, I’m actually increasingly bullish on the communications stock. Average Revenue Per User (ARPU) has been growing in its broadband and mobile divisions. Moreover, BT is targeting a workforce reduction programme of 25-40% as its FTTP comes to an end.

It’s also worth highlighting that fibre typically requires much less maintenance than conventional copper wiring. This will also allow for a reduction in maintenance staffing. It’s a long-term perspective, but I’d suggest earnings will improve dramatically towards the end of the decade.

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.

James Fox 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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