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BT share price: 3 reasons I would, and wouldn’t, buy the FTSE 100 share

The BT Tower at night
Image: BT Group

The BT Group (LSE: BT-A) share price has risen an impressive 76% during the past 12 months. The FTSE 100 share took off last November when news of successful Covid-19 vaccination trials emerged. And the strong UK economic rebound enabled the telecoms titan to keep rising through the first half of 2021.

BT’s share price has sunk over the last month, though, as coronavirus cases have spike again. At 173p per share, BT now trades at a chunky discount to the 18-month highs near 207p struck late June.

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BT’s share price: too cheap to miss?

There are a few reasons why I could be encouraged to buy following BT’s recent share price fall:

1) Excellent value for money (on paper). First and foremost, the telecoms stock looks like one of the best stocks to buy on the FTSE 100 when it comes to all around value. BT trades on a forward price-to-earnings (P/E) ratio of below nine times, well inside the bargain-basement benchmark of 10 times and below. It also sports a chunky 4.1% dividend yield for this fiscal year. This beats the broader Footsie prospective average by full percentage point.

White BT van in front of building

2) Taking the fight to the competition. Rising competition has been a major headache for BT over many years. But as my Foolish colleague Rupert Hargreaves recently commented, the company is taking the fight to its rivals by launching a raft of new products. The FTSE 100 share’s massive investment in spreading its super-fast fibre across the country could also pay off handsomely in the years ahead.

3) Altice gets on board. While the firm is clearly busy trying to turn around its recent misfortunes, Altice could provide the BT share price with a bit of extra rocket fuel by bringing more fresh ideas to the table. The US telecoms firm bought a 12% stake in BT recently.

Buyer beware!

There are clearly reasons to be encouraged by BT. And at current prices it could be argued that the FTSE 100 firm is one of the best-value turnaround stocks to buy today. But it’s my opinion that it still carries too much risk to be considered a sensible investment.

My first concern is over the company’s colossal debt pile. This largely reflects the massively capital-intensive nature of the telecoms sector. Capital expenditure at BT rocketed 63% in the three months to June, to £1.5bn. In turn, net debt rocketed more than £400m year-on-year to stand at £18.6bn.

Naturally I’m also still hugely concerned by the threat posed to BT’s share price by its competitors. Indeed, recently-created Virgin Media O2 has just announced plans to roll out full fibre across its network by 2028 in a clear attack on BT. There’s also huge pressure on BT’s recovery plan from Vodafone, Three, Sky, and TalkTalk among others.

So the BT share price is cheap. But I think it remains cheap for good reason and I won’t be buying it. I’d much rather buy other UK and US shares in August.

So the BT share price is cheap. But I think it remains cheap for good reason and I won’t be buying it. I’d much rather buy other UK and US shares in August.

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Royston Wild 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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