For years, the BT (LSE: BT.A) share price has done a whole lot of nothing. That’s until recently when it sparked into life before being pulled back over the course of the last couple of days.
This year the stock is up around 4%. But it has been gaining serious momentum in the last six months specifically, rising 23.9% from 105.4p to 130.5p today.
Despite its more recent fall, I’m focusing on the bigger picture. Could its rise in the last six months be the start of things to come? And could its recent dip be a buying opportunity?
Progress being made
After a steady couple of months, the stock sprung into form during May. The rally we’ve seen since then is partly linked to the release of its full-year results. For years BT has been a business in transition. Finally, it seems we’re starting to see that pay off this year.
In the results, CEO Allison Kirkby signalled the business had “reached the inflection point” for its long-term plan.
That must have come as music to the ears of shareholders who’d been waiting patiently on the sidelines for the company’s heavy investment to pay off. Now it means spending should come down and free cash flow should rise.
Chunky yield
That might be a reason why the board increased its dividend by 4% to 8p. As the chart shows, the stock has a 6.1% yield today, covered comfortably by earnings.
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Coupled with that, it looks like decent value for money. It has a trailing price-to-earnings (P/E) ratio of 16.2 and a forward P/E of just 5.8.
My concerns
But I don’t believe that paints the full picture.
On paper, BT may look like a steal. I like a bargain and its shares look cheap. I like stocks that provide income and it’s one of the highest-yielding shares on the FTSE 100. So, what’s stopping me from snapping up some shares today? Well, I have a few concerns.
Its debt is the primary one. Total net debt, as the chart highlights, sits just above £20bn. For comparison, its market capitalisation is just £14bn. That’s a red flag to me.
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What’s more, it has made good progress with its turnaround but the company has failed to grow its top line. That’s another concern of mine. Last year revenue grew a mere 1%. The year before, revenue fell by 1%.
Then there’s competition. BT is a household name and it has incredibly strong brand recognition. But it has been losing customers recently due to up and coming cheaper alternatives grabbing market share.
Time to buy?
On the surface, it may seem as if there’s plenty to like about BT. However, when digging a little deeper, I discover too many issues with the stock.
Some will argue it’s a business in transition, and so its mixed performance over the last couple of years can be justified. While I understand that, I still don’t plan on picking up the stock any time soon.
I see plenty of other options on the Footsie for me to take a closer look at. BT’s on my watchlist. But it’ll be remaining there for the time being.
