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He B.T. (LSE:BT.A) share price has been on something of a rollercoaster ride of late. So what is going on? Could a recent dip represent a buying opportunity?
Why has BT’s share price struggled?
As I write, BT shares are trading at 117p. This time last year they were trading at 127p, which is a 7% drop over a 12-month period. More recently, they have fallen 26% from 160p in mid-April to current levels. Market volatility and macroeconomic issues have contributed, but is there more to it than that?
Firstly, as I mentioned a moment ago, economic uncertainty has impacted BT’s share price. In fact, this has hurt many stocks in many global markets. Soaring inflation and rising interest rates have sparked fears of a recession. This could negatively affect demand for BT services.
Next, rising costs, including materials, labor and energy, have put pressure on BT’s margin levels.
Another issue, which is a key risk I consider for the viability of BT’s investment, is debt. When interest rates are high, servicing this debt can be more costly and affect both the balance sheet and investor returns. BT’s debt is approaching £20bn. This is higher than the company’s market capitalization of £11.6 billion!
Finally, competition in the telecommunications sector is still something that BT must contend with, despite its enviable position and profile in the market.
My thoughts
So I’ve covered the pessimism. But I do see positives when it comes to the current BT share price and any investment opportunities.
In the UK, when I think of telecommunications, BT immediately comes to mind. Reminds me of my childhood (many moons ago, I must admit) with BT branded home phones and believing that everything to do with phones and the internet was linked to BT. In my opinion, that’s brand power.
With the continued rollout of fiber internet and 5G, BT is in an advantageous position to capitalise. However, it should be noted that the costs associated with using this infrastructure and technology could be high. This could further impact BT’s share price.
Next, BT stock looks like good value to me at the moment with a price-to-earnings ratio of seven. This is much lower than the FTSE 100 average 14 and lower than most of their peers.
Additionally, BT shares would increase my passive income with a 6.6% dividend yield. However, I am smart enough to understand that dividends are never guaranteed. Since BT has a lot of debt on its books, this dividend could be canceled at any time.
All things considered, I’m not convinced that buying BT shares will increase my holdings. I am concerned about their debt levels, which are a red flag to me. Additionally, the lack of revenue growth and recent leadership changes don’t fill me with confidence.
For now I’ll stay out of it. I will continue to review my position and see what happens with the BT share price and developments around the business.
