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BT’s share price has bounced. Should I buy the FTSE 100 stock now?

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The BT (LSE: BT.A) share price is up 6% today. That makes it the best-performing share in the FTSE 100 index. The reason the stock has surged is that the telecommunications giant has posted its half-year results this morning. The market is clearly impressed with the results.

Is now the time to buy BT shares? Here’s my take.

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BT’s share price is up 

BT says it delivered a “strong operational performance” over the six months to 30 September. Its financial performance over the period however was quite poor, in my view.

For the half-year period, revenue was down 8% to £10.6bn. Meanwhile, profit before tax was down 20% to £1,062m. Basic earnings per share came in at 8.6p, 20% lower than the 10.8p figure reported for the same period last year. Overall, there’s not much to get excited about here.

Yet looking ahead, there were definitely some positives. BT said its H1 performance has given it the confidence to raise the lower end of its earnings before interest, tax, depreciation and amortisation (EBITDA) outlook range for this year, from £7.2bn to £7.3bn. And it now forecasts EBITDA of at least £7.9bn for 2022/23, with “sustainable growth” from this level going forward.

This growth in earnings – which should be driven by the recovery from Covid-19 and significant cost savings – is expected to result in the reinstatement of the company’s dividend next year. That divident reinstatement could potentially boost BT’s share price. 

Is now the time to buy BT?

Would I buy BT shares today on the back of these results? The answer is no. And there are a few reasons why I’d continue to leave the FTSE 100 stock alone right now.

One is that BT’s near-term growth is likely to be heavily dependent on what happens with Covid-19. Looking at what’s going on across the UK and Europe on this front right now, I see a lot of uncertainty here. We’re not out of the woods just yet. I’d much rather invest in a company that’s insulated from the coronavirus. Fundsmith’s top holding, Microsoft, is a good example of such a stock. It’s recent quarterly results were excellent, with revenue up 12%.

Another reason I wouldn’t invest in BT shares today is the enormous amount of debt on the company’s balance sheet. Today’s H1 results show net debt of £17.6bn. That’s very high. This adds risk to the investment case. On top of this debt pile, BT also has a large pension deficit it needs to sort out. At 30 September, that deficit stood at £4bn.

Finally, I’m just not impressed by BT’s track record. It doesn’t have a history of generating shareholder wealth like other FTSE 100 companies such as Unilever, Diageo, and Sage do. Look at the long-term chart. BT’s share price is currently well below the level it was at 20 years ago. Meanwhile, there are no dividends being paid right now.

All things considered, I see BT as a low-quality stock. Why would I buy BT shares when there are so many other good UK companies to invest in?

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Edward Sheldon owns shares in Microsoft, Unilever, Diageo, and Sage and has a position in Fundsmith. Teresa Kersten, an employee of LinkedIn, a Microsoft subsidiary, is a member of The Motley Fool’s board of directors. The Motley Fool UK owns shares of and has recommended Microsoft. The Motley Fool UK has recommended Diageo, Sage Group, and Unilever and recommends the following options: long January 2021 $85 calls on Microsoft and short January 2021 $115 calls on Microsoft. 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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