Is the BT share price the FTSE 100’s biggest bargain?

04/06/2024

The BT (LSE: BT.A) share price soared in May. During the month, it rose an impressive 25.8%. However, with the stock sitting at 132.7p, could it still be one of the best bargains the FTSE 100 has to offer? Let’s explore.

Why the rise?

Before I delve into that, I want to take a closer look at why the stock skyrocketed last month.

The main catalyst was the release of its full-year results. According to the firm, it’s now at the “inflection point” of its long-term strategy after passing the peak capital expenditure on its full fibre broadband rollout.

On top of that, the business also announced that it had hit its £3bn cost savings target a year ahead of schedule. It now plans another £3bn of savings by 2029.

Despite the market’s positive reaction, annual profits did slide 31% year on year. Net debt also rose by over 3%.

Value to be had?

But at its current price, is there still value left for investors considering buying shares today?

There are a few ways I can measure this. One is by looking at its price-to-earnings (P/E) ratio. It currently trades on a trailing P/E of 15.4. That’s above the Footsie average of 11. However, it’s forward P/E is 6.9. That’s way below the average and based on that, BT shares look like a steal.

Another valuation method is the price-to-book ratio. This measures a company’s market valuation relative to its book value. For BT, this comes in at 0.9. For context, anything below 1 is considered fair value.

A lethal combination

Going on the above, BT shares look like a good deal for investors who are seeking value today. What’s more, coupled with its cheap valuation, the stock has a 6% dividend yield.

BT’s dividend has been volatile in recent years. However, last year saw it increase its payout by 3.9% to 8p per share.

My concerns

But just because the shares look cheap doesn’t mean they’re a guaranteed buy. I have my concerns with the stock.

First, it has a monumental pile of debt on its balance sheet. It now stands at £18.9bn, having increased £850m in the last 12 months. For me, that’s a big red flag. Furthermore, this will be more difficult to pay off with interest rates expected to remain elevated for the next few years.

Despite the impressive strides it has taken, I’m still wary about competition. BT has size and brand recognition on its side. But with consumers shopping around for the best deal, I’m conscious that it could lose business to cheaper alternatives. This has been an issue for the firm in recent times.

A bargain?

There’s plenty to like about BT. And as an investor trying to build more streams of passive income, its dividend is highly tempting. But I also see plenty of issues with the business.

Regarding what my move is, I’ll be keeping it on my watchlist for now and doing some further research. I certainly wouldn’t label it as the Footsie’s greatest bargain, especially after its latest share price spike. I’ll be looking elsewhere on the index for that.

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