BT’s (LSE: BT.A) share price is not far off its 2 May one-year traded high of £1.74. This marks a 45% gain from its £1.11 low recorded precisely a year ago.
Some investors might be deterred from buying the stock on the idea that it cannot possibly rise much more. Others may feel compelled to jump on what they believe to be an irresistible bullish bandwagon.
Neither approach helps make significant long-term profits, in my experience as a former investment bank trader and perennial private investor.
Instead, my investment decision focuses on how much value is left in any stock and whether it suits my portfolio.
How much value remains in the shares?
A key lesson I learned early on is that price and value are not the same thing at all. Moreover, it is in the gap between the two that the big, sustained profits lie in the long run.
In BT’s case, its 0.8 price-to-sales ratio looks very undervalued against the 1.4 average of its competitors. These comprise Vodafone at 0.6, Orange also at 0.8, Deutsche Telekom at 1.3, and Telenor at 2.7.
The UK’s telecoms giant also looks undervalued on its price-to-book ratio of 1.3 against its peers’ average of 1.7.
I used a discounted cash flow (DCF) analysis to pinpoint where its share price should be, based on future cash flow valuations for the firm.
Using other analysts’ figures and my own, the DCF for BT shows its shares are 68% undervalued at their present price of £1.61.
This means their fair value is £5.03, although various market forces could move them lower or higher than that.
What about the core business outlook?
A risk to the business is the heavy investment required to sustain and expand its vast network. Another is the cut-throat competition for its business from domestic and international peers.
However, BT stated in its 2024 results released last May that it had passed peak expenditure on its next-generation networks and full-fibre broadband expansion programme.
And despite its heavy investment over the 12 months, revenue increased 1% to £20.8bn. Adjusted EBITDA also rose – by 2% — to £8.1bn.
In its 30 January Q3 2025 figures, the firm reported its highest ever full fibre optic network buildout of over a million premises. Additionally, earnings before interest, taxes, depreciation, and amortisation were up 4% year on year, to £2.1bn.
As it stands, consensus analysts’ forecasts are that BT’s earnings will increase 15.4% by the end of 2027. And it is growth here that ultimately powers a firm’s share price and dividends.
Will I buy the shares?
I already have shares in BT. These were bought last May after CEO Allison Kirkby said the firm achieved its £3bn cost and service transformation programme a year early. She also stated that the firm had reached the inflexion point in its long-term strategy.
Legendary investor Carlos Slim also bought his first shares in BT around the same time – albeit on a somewhat larger scale.
He has not commented on why he made his purchase, but I made mine based on the exceptional value I see in the stock. As this has not changed, I will buy more very soon.
