BT’s (LSE: BT.A) share price edged lower following its 6 November H1 fiscal year 2025/26 results. It is currently 21% down from its 25 July one-year trade high of £2.23.
However, the price drop does not mean the stock has automatically become a bargain now. But nor does it signal that the telecoms giant is fundamentally worth less than it was before.
The answer to whether BT stock is a bargain lies in what the business’s true value is.
So, what is it?
Looking for value
One way of looking at this is to compare a stock on various measures with competitors in the same business.
For example, on a price-to-sales (P/S) ratio basis, BT does look undervalued. It is trading at 0.9 against a peer average of 1.3. These comprise Vodafone at 0.6, Orange at 1, Deutsche Telekom at 1.1, and Telenor at 2.5.
It also looks cheap on its 1.4 price-to-book ratio compared to its competitors’ average of 1.7.
And the same is true of its 18.3 price-to-earnings ratio against the 23.8 average of its peers.
This is all very promising for those looking for value. But my litmus test is the discounted cash flow model.
This is because it clearly identifies the price at which any stock should trade. It does so by using cash flow forecasts for the underlying business to establish its true worth.
The DCF for BT shows it is a stunning 57% undervalued at its current £1.76 price.
Therefore, its ‘fair value’ is £4.09.
What do the results tell us?
The headline numbers were on the poor side. Revenue fell 3% year on year to £9.8bn, while profit before tax dropped 11% to £862m.
However, I think this largely reflects the ongoing heavy costs involved in maintaining its strong fibre and 5G network momentum. Notably, for example, its Openreach full fibre buildout hit a record 2.2m premises in H1, expanding the footprint to 20.3m.
On the more positive side, average revenue per user for its broadband services rose 4% over the half. Adjusted EBITDA remained flat, at £4.1bn.
Additionally positive was BT stating it remains on track to deliver adjusted revenue of around £20bn this year. The same applies to its EBITDA target of £8.2bn-£8.3bn.
A risk to its earnings is any significant delay in its full fibre broadband rollout. This would allow competitors to poach customers.
That said, analysts forecast that BT’s earnings will grow by 16.1% a year to end-fiscal year 2027/28.
And it is precisely this growth that drives any firm’s share price higher over time.
Is the stock unmissable for me?
BT occupies a dominant position in several UK telecoms sectors, including fixed-line infrastructure (via Openreach). It is also a major player in broadband and mobile through its BT, EE, and Plusnet brands.
The firm is in the middle of a huge rollout of infrastructure and services to cement this competitive advantage. The outlook for these initiatives appears extremely strong to me, as evidenced by BT’s robust earnings growth outlook.
Consequently, I am looking to add to my existing holding in the firm very soon, while also scouting other high-potential opportunities.
