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

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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?

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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.

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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.

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