With the BT share price soaring, where does the Footsie stalwart go next?

BT was one of the FTSE 100’s top performers in May. But with its share price gaining momentum, where’s it now heading?

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If I’d invested in BT (LSE: BT.A) a month ago, I’d be a very happy man. During that time, its share price has soared 24.9%.

Unfortunately, I didn’t. And while aiming for quick gains isn’t why I invest in companies, it does have me wondering. Where will the BT share price go from here?

The telecommunications giant’s a FTSE 100 mainstay. But it’s been a disappointing investment in recent times. In the last five years, the stock’s lost 36.2% of its value. A share back then would have set me back 206.3p. Today, I’d have to shell out just 131.7p.

But I’m not one to complain. Instead, I sense a potential bargain.

A solid month

The stock’s been pushed higher recently by a strong set of full-year results. Within them, the business announced it was at an “inflection point” after reaching the peak capital expenditure on its full fibre broadband rollout.

That’s a significant milestone for BT. For years it’s been a business in transition. Now, it seems like it could be making headway. Clearly, investors are excited.

Cheap as chips?

But have they got carried away? The BT share price has soared before, only for it to come tumbling straight back down. The last thing I want to do is buy at a peak.

Well, its shares look like decent value for money at the moment. They trade on 15.4 times trailing earnings. That’s not a bargain by any means. But for a company of BT’s quality, it doesn’t seem too bad.

That said, they’re trading on 6.9 times forward earnings. Now that looks like a bargain.

The risks

But I would never buy a stock on valuation alone. More factors need to be taken into account. For example, does the business have a healthy balance sheet? That’s where my first concern with BT lies.

It has a very large pile of debt on its books, which has only been rising. The total is £19.5bn, around one and a half times more than its market-cap. Worryingly, that grew by £850m last year, largely due to an increase in pension scheme contributions.  

Also, I must consider competition in its industry. This is also a concern of mine with the business losing customers in recent times as newcomers such as Virgin continue to grab more market share.

Impressive yield

Of course, a 6.1% dividend yield sweetens these risks. Last year, its payout grew by 3.9% to 8p per share from 7.7p. In its 2023 results, the firm reiterated that it remains committed to its progressive dividend policy and aims to maintain or grow its payout every year.

On my watchlist

But even so, BT’s a stock I’m keeping on my watchlist. I like a lot about the business. It helps that its shares looks cheap. But its rising debt’s a big issue for me and one that puts me off snapping up shares.

Its share price has been soaring and should we see it recoil maybe then I’ll make a move. I’ll be holding off for now.

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.

Charlie Keough 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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