The BT (LSE:BT-A) share price has been on a tear in 2021, at least relative to its performance before then. The stock changed hands for 186p a pop yesterday — 37% higher than the value at the start of January. Last month, it even breached the 200p mark!
Today, I’m going to recap why the market has now warmed to the telecommunications giant and, more importantly, speculate on whether it can continue and whether I should invest now.
BT share price: positive momentum
The initial catalyst for the BT share price springing to life was arguably the emergence of the coronavirus vaccines. Like battered airlines and hotel groups, it was swept higher by investors piling out of growth-focused tech plays and into value stocks. A rising tide lifts all boats, as they say.
For me, however, the recent arrival of a new investor — billionaire Patrick Drahi — is more significant. Justifying his 12.1% stake in the company, Drahi has stated that his investment was motivated by Brexit and the reduction in scrutiny from regulators.
Further to climb?
There are a couple of reasons I can think of why the BT share price might have further to go.
#1: Takeover rumours. Suggestions that BT is a takeover target are hardly new. However, the arrival of its aforementioned new investor could be significant. For his part, Drahi has apparently said that he has no interest in buying BT. Instead, he sees an opportunity to help the company’s infrastructure division — Openreach — get access to 25 million homes in five years. Along with others, I remain sceptical. And any suggestion that a bid was forthcoming would inevitably push the BT share price higher.
#2: Dividends reinstated. Having been cut last year, the revival in BT’s fortunes should lead to payouts being reinstated as planned. As well as being a relief to those wanting income from their portfolios, confirmation could lead to a swathe of new dividend hunters taking a fresh look at the company. Again, this could push the BT share price higher (albeit more gradually).
Bearish points on BT
Being bullish on BT is not the same as saying there won’t be wobbles along the way. Let’s not forget that it’s been an absolute dog of a stock to own for many years. For perspective, the BT share price is still a little over 50% down on where it was back in 2016.
For me, potential risks include the potential for political meddling. I would also need to be bear in mind the pension deficit if I were thinking of investing. Ironically, a rising share price makes this more of a problem and could put off any potential bids for the company for now. On a more general note, we could see investors revert back to growth stocks once the buzz around reopening dies down.
Would I buy BT shares today?
On balance, I remain bullish on BT as a contrarian play and would probably still buy at this level. While a low P/E should never be the sole reason to purchase a stock, the current valuation (10 times forecast earnings) still looks reasonable to me.
Then again, I’d remain realistic. Without a takeover bid, BT’s share price is unlikely to rocket from here. I’d also continue spreading my money around other stocks in unrelated sectors if securing a rising income were a priority.
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Paul Summers 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.