Since the end of August, the BT (LSE: BT.A) share price has risen in value by around 19%, excluding dividends, outperforming FTSE 100 by a significant percentage over the same period.
However, following this rally, I think it could be time to sell shares in the telecommunications giant ahead of the general election at the end of the week.
The primary reason why I think it could be wise to sell before the election result is known, is the threat of nationalisation. Labour leader Jeremy Corbyn has promised to nationalise BT’s Openreach division as part of his promise to give every household in the UK free access to broadband.
This isn’t the first time the government has tried to separate BT and Openreach. A few years ago, due to competition concerns, policymakers attempted to separate the two businesses. But couldn’t do this due to complications surrounding BT’s giant pension scheme.
If Corbyn does get into power, I think he’s going to run into the same kind problems. That could mean he’s forced to either nationalise the entire business or abandon the plan entirely. But the risk of nationalisation is only one of the reasons why I think now could be the time to sell the BT share price.
The company’s ever-growing debt mountain and falling earnings are two other reasons. City analysts are expecting the company to report a 17% decline in earnings per share for its current financial year. That will mark the fourth consecutive year of earnings declines. Over the same time frame, BT’s net debt has jumped by 20%.
And I don’t think this trend is going to come to an end anytime soon. BT is facing threats on all fronts. Smaller competitors are nipping at its heels in the broadband market, and the pay-tv market has become a battleground dominated by the American streaming giants.
On top of these negatives, policymakers are also forcing BT to invest more in its operations, which could lead the company to cut its dividend as it tries to meet aggressive broadband growth targets.
High-risk, low reward
So, even if a Labour doesn’t get into power at the end of this week, BT’s future is far from clear. That’s why I think it could be time to sell the shares ahead of the election result.
The way I see it, investors are faced with two outcomes right now. Either the company is nationalised under Corbyn, or earnings continue to decline as the company tries to compete with lower-cost peers while trying to meet the government’s broadband connection goals.
Both scenarios don’t suggest much of a positive outcome for investors. As a result, I think it would be better to avoid BT altogether.
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Rupert Hargreaves owns no share 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.