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BT’s share price has fallen to 170p. Here’s why I’m still not buying

BT’s (LSE: BT.A) share price just continues to fall. This time last year, the FTSE 100 stock was trading at around 235p. Today, though, the shares are changing hands for around 170p.

From a value investing perspective, BT certainly stands out right now. As a result of its share price fall, the stock currently trades on a rock-bottom forward-looking P/E ratio of just 7.2 – less than half the median FTSE 100 P/E of 15.4 – and sports a dividend yield of a huge 9%. However, I’m still not tempted to invest in the telecommunications giant. Here are a few reasons why.

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Poor financial performance

My first issue with BT is the group’s financial performance has been pretty poor recently. Just look at the company’s half-year results in late October – adjusted revenue fell 2%, adjusted EBITDA declined 3%, and normalised cash flow tanked 38%. The interim dividend was also held flat at 4.62p per share. I’d want to see some signs performance is improving before investing in the company.

Balance sheet problems

Another issue is BT’s balance sheet – it doesn’t look good. For example, at 30 September, net debt stood at £18.3bn. By contrast, equity on the balance sheet was £10.3bn and the company’s market-cap is currently about £16.9bn. There’s also a monster pension deficit on the books. 

This is concerning, to my mind, as highly-leveraged companies can be vulnerable in an economic downturn. Given that we could be towards the end of the current economic cycle, I think investing in BT right now is a risky move.

Dividend cut risk

I also remain convinced BT’s dividend is at risk of a cut in the near term. The fact the yield has risen to nearly 9% suggests the market shares the same view.

One red flag here is the fact the full-year dividend payout has been held flat at 15.4p per share for a few years now. This pattern often precedes a cut. It’s also worth noting the consensus dividend forecast for the year ending 31 March 2021 is 12.2p per share. In other words, many analysts believe a cut is on the horizon.

Given the company’s large debt pile, its huge pension deficit, and its increasing capital expenditures, I wouldn’t be surprised at all if BT’s dividend payout was cut.

The trend is not your friend

Finally, from a technical analysis point of view, the share price trend here remains down. As my colleague Kevin Godbold recently pointed out, shares are more likely to continue a trend than they are to reverse direction. So, right now, investing just doesn’t seem wise.

Of course, at some stage in the future, BT could turn things around and see an increase in its share price. However, given the company’s lack of momentum at present, I think there are much better FTSE 100 stocks to buy at the moment.

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Edward Sheldon has no position in any 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.