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Down 11%, is BT’s share price about to move higher?

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Portrait of elderly man wearing white denim shirt and glasses looking up with hand on chin. Thoughtful senior entrepreneur, studio shot against grey background.
Portrait of elderly man wearing white denim shirt and glasses looking up with hand on chin. Thoughtful senior entrepreneur, studio shot against grey background.

It’s been a tough few months for the BT Group (LSE: BT-A) share price. The FTSE 100 stock has fallen 11% in value since its 2022 highs above 200p in February.

Having said that, BT’s share price has been more stable than the broader Footsie in more recent weeks. Could healthy interest from dip buyers be about to push the telecoms giant’s share price higher?

The company’s low valuation could certainly leave scope for fresh price gains. At 178p per share, it trades on a forward price-to-earnings (P/E) ratio of just 8.4 times.

Reasons to buy BT

I would buy BT shares because of the company’s critical role in the digital revolution. For example, I think the firm’s a great way for me to capitalise on growing demand for superfast broadband.

Pleasingly, fibre rollout at its Openreach division is happening at a blistering pace. Some 7.2m premises were fibre connected as of March and its annualised build rate hit 3m in the first three months of 2022.

I also like the steps the company is making to spread 5G across the country. Its network now covers 50% of the UK.

Why I worry for BT’s share price

Sure, BT looks cheap on paper. However, it’s my belief that its low P/E ratio reflects the colossal risks it faces in the near term and beyond.

Firstly, it’s important to remember that the company’s profits are tied closely to the performance of the broader economy. With soaring inflation sinking GDP at the moment, and Brexit threatening to damage output over the long term, the earnings outlook for BT is less than reassuring to me.

Indeed, economics reseacher NIESR predicts that GDP will contract 0.4% in the second quarter. A full-blown recession may just be a stone’s throw away as inflationary pressures swell.

As a potential investor I’m also worried about the worsening competitive pressures on the company’s top line. This has been a drag on BT’s consumer and business divisions for years and group revenues dropped 2% in the 12 months to March as a result. Sales and margins might suffer further too if consumer-switching picks up in response to the cost of living crisis.

More specific dangers to profits have emerged in more recent weeks as well. The competition watchdog is now considering whether to stop the merger of BT Sport with Warner Bros Discovery, it was announced at the start of June.

And in late May, the government said it is investigating Altice owner Patrick Drahi’s 18% stake in BT. The decision — which was made on national security grounds — could have a big impact on the company’s long-term fortunes.

The verdict

It’s my opinion that the risks of owning BT shares far outweigh the possible rewards. And I believe that the company’s cheap share price fairly reflects this. I’ll pass on buying the business today. Not only do I not see it rising higher soon, but I think its share price could start sliding again.

The post Down 11%, is BT’s share price about to move higher? appeared first on The Motley Fool UK.

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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.

Motley Fool UK 2022

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