It’s been an eventful few years for BT (LSE: BT.A). The company has released a profit warning, faced accounting irregularities in its Italian division, sought to undertake a major restructuring and is now in the process of changing its CEO. In response, investors have marked-down its share price so that it now trades at less than 50% of its level from less than three years ago.
While the stock has an uncertain future, it may also offer investment potential. A low valuation coupled with growth potential from a refreshed strategy may lead to impressive total returns. As such, it could be worth buying alongside a FTSE 250 stock which also has a low valuation. Both shares could help to boost your retirement prospects – especially with the State Pension age set to rise.
Following its share price fall, BT now has a price-to-earnings (P/E) ratio of around 10. This suggests that investors have taken into account the risks facing the business as it seeks to implement major changes. For example, it is aiming to become more efficient through a headcount reduction. This could help to improve its financial performance in the long run, although in the short term, it is expected to report a decline in earnings. In the current year its bottom line is forecast to fall by around 7%, with a further fall of 2% due next year.
As such, its share price performance in the near term could be somewhat mixed. However, the promise of a new CEO and the prospect of further strategy changes may have a positive impact on investor sentiment. After all, BT has a strong position within a range of key markets, and given the right strategy, it could generate improving financial performance. On such a low valuation, now could be the right time to buy it.
Also offering a low valuation at the present time is gaming company William Hill (LSE: WMH). It reported a mixed set of half-year results on Friday which showed a fall in adjusted pre-tax profit of 13%, with it declining to £96.3m. The company faces regulatory change which looks set to negatively impact on its financial performance. However, with political changes taking place in the US, there may also be growth opportunities available to the business over the medium term.
With the stock trading on a P/E ratio of around 12, it seems to offer a wide margin of safety. Certainly, there may be less risky shares available elsewhere within the FTSE 250 at the present time. But with a diverse business model that could offer growth potential in the long run, the stock could have a favourable risk/reward ratio. Alongside this, a 4.4% dividend yield which is covered almost twice by profit suggests that its income appeal remains high for the long term.
Peter Stephens has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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.