BT’s (LSE: BT.A) share price has dropped 20% from its 25 July one-year traded high of £2.23.
This could signal a bargain opportunity in Britain’s biggest broadband and mobile operator. Or it could indicate the firm is simply worth less now than it was before.
To find out which it is, I looked at the core business trajectory and key valuation measures.
So, what is the answer?
Business at a turning point
BT is undergoing a transformation, and a failure to implement this optimally remains the key risk for it.
On one side, it remains the backbone of the UK’s telecoms sector, with Openreach driving the full‑fibre rollout and EE leading in 5G coverage. On the other, its international arm drags on revenue, while high leverage and intensifying competition continue to erode margins.
Its recent results highlight these positive and negative elements at play. Its H1 2025 results released on 6 November showed record fibre-to-the-premises builds of 2.2m+ premises. This expands its footprint to 20.3m homes and businesses, including 5.5m in rural areas.
Openreach broadband average revenue per user grew 4% year on year to £16.7, driven largely by higher fibre adoption. BT’s EE continued to lead the UK mobile market, with 5G+ standalone coverage reaching 66% of the population.
However, outside the UK, BT completed strategic exits and reshaped its International unit, underscoring ongoing weakness in global operations.
Overall, the group saw revenue dropping 3% in the half to £9.8bn, while profit before tax dropped 11% to £862m.
That said, BT said it is on track to deliver adjusted revenue target of around £20bn this year. The same applies to its EBITDA target of £8.2bn-£8.3bn.
Moreover, analysts forecast that its earnings will grow 15% a year to end-2027.
And it is this growth that drives any firm’s share price higher over time.
Major undervaluation?
Beginning with comparisons to its competitors, BT’s 0.9 price-to-sales ratio looks cheap. It is second-bottom of its group, which comprises Vodafone at 0.7, Orange at 1, Deutsche Telekom at 1.1, and Telenor at 2.4.
The same is true of its 18.2 price-to-earnings ratio against its peer average of 23.8. And it also looks a bargain on its 1.4 price-to-book ratio compared to its competitor average of 1.7.
To cut to the chase on BT’s specific valuation, I ran the discounted cash flow model. This uses cash flow forecasts to identify the price at which any stock should trade, based on underlying business fundamentals.
It is the key test for me, as it produces a standalone valuation, unaffected by any under- or overvaluation of the relevant business sector.
In BT’s case, it shows the shares are a whopping 59% undervalued at their current £1.78 price.
Therefore, their ‘fair value’ is £4.34.
My investment view
I bought BT originally for its strong earnings growth prospects. These should drive its share price, and dividend, higher over time.
Indeed, analysts forecast that its dividend yield will rise to 4.9% next year and the year after, from 4.6% currently.
I think this robust earnings growth is still in play, and consequently see the stock as a bargain, not a bust.
As such, I will buy more of the shares very soon.
