This has been yet another difficult week for shareholders in former UK telecoms monopoly BT Group (LSE: BT.A). But after almost four months of falls, is the BT share price now a bargain buy?
The share price slumps
On Friday, the share price closed at 114.1p, valuing the business at £11.3bn. Here’s how the shares have performed over the short and medium term:
| One day | -2.0% |
| Five days | -10.4% |
| One month | -8.5% |
| Six months | -35.1% |
| 2022 YTD | -32.7% |
| One year | -28.0% |
| Five years | -54.0% |
The price fell more than a tenth this week, making it the the FTSE 100‘s second-worst performer. Also, this widely owned and heavily traded stock is down almost a third this calendar year, as well as losing more than half of its value over five years.
At its 52-week high, the price hit 201.4p on 17 February. Alas, Russia invaded Ukraine one week later, sending global stock markets into a nosedive. On Thursday (3 November), BT shares crashed to their 52-week low of 113.95p. They remain a mere whisker above this rock bottom today. Hmm.
BT has been a value trap for years
My above table shows that BT has been a great destroyer of capital over all periods ranging from five days to five years. Thus, despite appearing to be a ‘cheap’ share for years, BT stock has been a value trap for unwary buyers. Surely at some point the ailing BT share price will stage some kind of turnaround?
I don’t have a crystal ball or any other device for divining the future. That said, I worry about the growing risk of a deep UK recession. After all, consumer confidence is being crushed by a toxic mix of soaring inflation, sky-high energy and fuel bills, and rising interest rates. All this is putting huge strain on household finances, forcing Britons to cut back their discretionary spending. Not good news for BT.
Honestly, BT shares look dirt-cheap to me
Without any means of forecasting the future, I rely on company fundamentals to weigh up whether shares look cheap to me. At the current BT share price of just above 114p, this stock trades on a modest price-to-earnings ratio of 6.6, for an earnings yield of 15.1%. This is over twice the earnings yield of the wider FTSE 100.
Meanwhile, the relentless slide in the share price over the past four months has pumped up its dividend yield to 6.8% a year. This is almost 1.7 times the Footsie’s cash yield — and it’s covered roughly 2.2 times by earnings.
Summing up, I expect BT’s revenues, earnings and cash flow to be hit in 2022-23. But to me, these headwinds appear baked into the current share price. Therefore, I would happily buy the shares right now for their cash yield and future recovery potential. However, I won’t do so, purely because we invested heavily in six attractively priced US stocks earlier this week!
