Has the BT share price gone too far?

The BT share price has had a stellar 2024. But after its impressive rise, is there more room for growth? This Fool explores.

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The BT (LSE: BT.A) share price has been flying recently. It took the stock a few months to kick into life this year. But after rising sharply in May, it can’t seem to slow down. Back in May, the firm released its full-year results, which have quite clearly left investors excited. Since the announcement, its shares have shot up by nearly 15%.

Year to date, the stock’s up 18.4%. In the last six months, it’s climbed a whopping 37.2%. The FTSE 100‘s up 4.3% during the same period.

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But while its rise in recent months has been impressive, it begs the question, has the stock peaked, or could it be that right now it’s too good to pass? Without further ado, let’s delve in.

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Valuation

So the business clearly has momentum on its side. But is there any value left in the stock? There are a few metrics I can use to answer that. The first is the key price-to-earnings (P/E) ratio. BT currently trades on a P/E of 17.3.

Compared to the FTSE 100 average of 11, that may look overvalued. That said, BT’s cheaper than major competitors such as Vodafone (21.4) and Deutsche Telekom (25.9).

What’s more, its forward P/E is just 5.7. That looks like good value for a company of BT’s stature.

Broker forecasts

That cheap valuation may be why analysts predict the stock to keep rising in the year ahead. Fifteen analysts offering a 12-month target price have an average of 200.1p. That represents a 35.1% premium from BT’s current price. Of those, the highest is 290p, which is 95.8% higher than where the stock’s sitting right now.

Chunky dividend

Of course, analysts’ forecasts can be wrong. However, I think they can provide a good guide. What’s more, aside from experts being bullish, the stock also sports a 5.4% dividend yield.

Its payout’s comfortably covered by earnings. And while its yield has fallen over the last couple of months due to its share price surge, it’s still comfortably above the FTSE 100’s 3.6%.

Debt burden

Yet while that’s all well and good, I see a few major issues with BT. The first is its heavy debt.

The firm’s net debt currently sits at around £20.6bn. That’s a monumental pile and almost one and a half times BT’s market capitalisation. What’s more, with the UK base rate sitting at 5%, high interest rates will only make this more expensive to service.

On top of that, another worry of mine is competition. Granted, the business is in the process of implementing its long-term plan. However, it’s alarming that BT has been losing customers, especially to smaller and more nimble competition. That’s a trend I’ll be watching closely in the months to come.

I’m steering clear

While BT has an attractive valuation, I see too many issues with the business, namely its large debt and rising competition.

That’s why I’m avoiding adding any shares to my portfolio. Despite its impressive rise, I’ll be keeping it on my watchlist for the moment.

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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 recommended Vodafone Group Public. 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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