With the BT share price this low, should I buy?

The BT share price is trading at one of its lowest levels in the past few decades. This could mean the stock is worth buying today.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

The BT (LSE: BT.A) share price has plunged in value since the beginning of 2020. Year-to-date, shares in the telecoms giant are down a staggering 40%, excluding dividends. That’s compared to a drop of around 22.6% for the FTSE 100.

After this dip, the BT share price is dealing at a 10-year low. This suggests the stock offers a wide margin of safety. But with further economic pain likely, as a result of the coronavirus crisis in the short term, is it worth buying the shares today?

Is the BT share price cheap?

After recent declines, it looks as if the BT share price is indeed cheap. The stock is trading at a price-to-earnings (P/E) ratio of 5.1. That’s compared to its long-term average P/E of nearly 10.

While the business might suffer some impact from the coronavirus crisis, it’s much better positioned than many of its peers. With most of the country working from home, demand for broadband and pay-tv services have surged. BT is a leader in both of these markets.

At this stage, it’s impossible to tell how badly the crisis will hit BT. However, the company’s commitment to increase pay for “team member” workers is positive. Management has also promised to avoid job losses in the near term.

At a time when so many other companies are slashing staff numbers, BT’s actions suggest the business is fairing better than most. That could support its share price in the medium term. 

Dividend under threat 

Unfortunately, it seems likely BT will cut its dividend in the near term. The share price currently offers a market-beating dividend yield of 9%. That looks attractive in the current interest rate environment, but there have been question marks over this payout for some time.

BT was already struggling to meet its capital spending and pension commitments before this crisis. A cut would free up cash for the company.

This might be bad news for the BT share price in the near term. But, with more cash available for reinvestment and debt repayment, it could be the right decision in the long term. With less debt, BT would ultimately be able to return more cash to investors.

Shares look cheap

So overall, the BT share price looks cheap after recent declines. Shares in the telecoms giant are trading at a deep discount to the company’s historical average. That implies the stock offers a wide margin of safety.

While the company’s dividend might not survive the coronavirus crisis, the fact that the stock looks so cheap could make up for this lack of income. What’s more, BT seems to be in a relatively strong position to overcome its present challenges.

As such, buying the BT share price today and holding over the long run could produce high returns for investors.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Rupert Hargreaves 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.

More on Investing Articles

Investing Articles

Could the JD Sports Fashion share price double in the next five years?

The JD Sports Fashion share price has nearly halved in the past five years. Our writer thinks a proven business…

Read more »

Bus waiting in front of the London Stock Exchange on a sunny day.
Investing Articles

If interest rate cuts are coming, I think these UK growth stocks could soar!

Falling interest could be great news for UK growth stocks, especially those that have been under the cosh recently. Paul…

Read more »

Investing Articles

Are these the best stocks to buy on the FTSE right now?

With the UK stock market on the way to hitting new highs, this Fool is considering which are the best…

Read more »

Petrochemical engineer working at night with digital tablet inside oil and gas refinery plant
Investing Articles

Can the Centrica dividend keep on growing?

Christopher Ruane considers some positive factors that might see continued growth in the Centrica dividend -- as well as some…

Read more »

Smiling family of four enjoying breakfast at sunrise while camping
Investing Articles

How I’d turn my £12,000 of savings into passive income of £1,275 a month

This Fool is considering a strategy that he believes can help him achieve a stable passive income stream with a…

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

2 top FTSE 250 investment trusts trading at attractive discounts!

This pair of discounted FTSE 250 trusts appear to be on sale right now. Here's why I'd scoop up their…

Read more »

Smiling young man sitting in cafe and checking messages, with his laptop in front of him.
Investing Articles

3 things that could push the Lloyds share price to 60p and beyond

The Lloyds share price has broken through 50p. Next step 60p? And then what? Here are some thoughts on what…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

£1,000 in Rolls-Royce shares a year ago would be worth this much now

Rolls-Royce shares have posted one of the best stock market gains of the past 12 months. But what might the…

Read more »