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How low does the BT share price have to go before you buy it?

Looking at a chart of the BT Group (LSE: BT.A) share price history will be a painful experience if you own the company’s stock.

Bargain stock?

At the end of 2016, the FTSE 100 telecoms giant briefly topped 500p per share. Today, you can pick it up for around 196p, having lost a whopping 60% of its value. That’s bad news for people who hold the stock, but an opportunity for interested buyers.

Plenty of you will be asking this question. Should I buy the BT stock for my ISA? So let’s have a look at the investment case. It’s a surprise to see BT still has a market-cap just shy of £20bn, given the thumping inflicted on its share price. This is still a major operation.

BT shares value

It isn’t hard to see why so many investors are tempted, given its apparently bargain valuation of just 8.7 times earnings and similarly low price-to-revenues ratio of just 0.8.

Naturally, there’s a good reason why it’s so cheap. The BT share price news has been unremittingly dreadful as the company has been shedding pay-TV customers and losing broadband users to rivals amid dismal customer satisfaction reviews, at the same time as regulator Ofcom beefs up service standards.

BT could even lose millions of pounds worth of EU revenues after Brexit, and that’s without mentioning the Italian accounting scandal.

Earnings down

Earnings per share have fallen for each of the last three years, and City forecasters expect a further 1% drop in the year to 31 March 2020, with only a meagre 1% increase the year after. The BT shares news makes grim reading. And yet, It does pay a meaty forward yield of 7.7% with cover at 1.7 times earnings.

However, Kevin Godbold has noted with concern that operating cash flow has been falling and borrowings have been ballooning. Cash flows have almost halved to 31p per share in five years, while debt jumped from £5.8bn to a forecast £13.2bn for 2019, which could leave BT struggling to fund the dividend.

Ready to cut?

The board is rumoured to be divided on whether to cut its payout, with new chief executive Philip Jansen said to be in favour to help fund BT Openreach’s costly £8bn fibre broadband roll-out.

Its mobile arm EE’s expensive 5G plans will also drain resources. BT also has the constant shadow of its massive £5bn pension deficit, and more than £50bn in pension liabilities.

Cheap and cheerful

With revenues stalling for the last two years, and little change expected in the next two, the group is unlikely to find a rapid path out of its troubles. However, management may be reluctant to be too tough on the dividend as this is now the main reason to own the stock.

Rupert Hargreaves is anticipating a turnaround as management finally grasps the scale of BT’s problems. Today’s low share price is a good entry point as the stock could quickly snap back if investor sentiment picks up, although a meaningful recovery still seems a long way off to me.

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Harvey Jones 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.