The BT (LSE: BT-A) share price fell 5% this week as the release of its latest results saw shareholders hurry to offload their shares.
The FTSE 100 stalwart has struggled in recent years. And with the stock down 19% across the last 12 months, this epitomises the gloomy period that its shareholders have had to suffer. Five years ago, a share in the telecommunications giant would have cost me just shy of 210p. Today a share costs just 145p.
In true Fool fashion, I’m always on the lookout for stocks I can snap up for cheap and hold for years to come. So, could BT be my next target? Let’s explore.
BT update
The main reason for the tumble in the BT share price this week was the release of its full-year results. For the 12 months to 31 March, BT posted revenue of £20.7bn, beating expectations of £20.5bn, while adjusted EBITDA rose by 5% to £7.9bn. Yet despite this, its free cash flow had fallen 5%, to £1.3bn. Pre-tax profits also nosedived 12%.
However, the headline that largely caught investors’ attention was the major job cuts that the business plans to take in the years ahead. By the end of the decade, BT’s workforce will be reduced by over 40%, with this including BT employees and third-party contractors. This move feeds more widely into the firm’s cost-saving initiative, of which it announced it had saved £2.1bn towards a £3bn target.
With the stock falling 8% following the announcement, investors clearly didn’t take kindly to the news.
Should I buy?
Regardless of the news, does this fall present an opportunity for me to snag up some shares?
Well, there are certainly a few reasons why I like the look of BT. To start, the stock offers a substantial dividend yield of around 5.6%. With inflation set to continue to persist in the UK in the months to come, this offers me a hedge against high rates, to a degree.
The stock also looks relatively cheap, with a price-to-earnings (P/E) ratio just shy of eight.
However, I do have some major concerns with BT. The business finds itself sitting on a monumental pile of debt. And to make matters worse, a further £850m was added in the last year following pension scheme contributions. With the pile now sitting at nearly £19bn, this poses a major risk for BT. Further, with interest rates at highs not seen in years, this debt may become difficult to pay off.
BT also faces headwinds such as the impacts of the rising cost of living. Recently it was reported that one million people cancelled their broadband in the last year as inflation continues to squeeze people’s budgets. This drop in demand will likely have an adverse effect on BT in the months ahead.
So, while BT shares look cheap, I won’t be buying any right now. Its low P/E ratio and above-average dividend yield are certainly attractive. However, with issues such as its massive debt and uncertainty surrounding future job slashing, I’m steering clear of BT for now.
The post The BT share price fell 5% this week! Is now my time to buy? appeared first on The Motley Fool UK.
Like buying £1 for 51p
This seems ridiculous, but we almost never see shares looking this cheap. Yet this recent ‘Best Buy Now’ has a price/book ratio of 0.51. In plain English, this means that investors effectively get in on a business that holds £1 of assets for every 51p they invest!
Of course, this is the stock market where money is always at risk — these valuations can change and there are no guarantees. But some risks are a LOT more interesting than others, and at The Motley Fool we believe this company is amongst them.
What’s more, it currently boasts a stellar dividend yield of around 8.5%, and right now it’s possible for investors to jump aboard at near-historic lows. Want to get the name for yourself?
See the full investment case
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More reading
Is BT one of the UK’s best value shares?
After BT shares plunged on results day, is it time to buy?
Will tomorrow’s results move the BT share price?
BT shares yield 5%. Are they worth buying?
My 3 top reasons to buy BT shares in 2023
Charlie Keough 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.