It’s been a rollercoaster year for holders of BT (LSE: BT-A) stock. The price has fluctuated between 156p and 200p with plenty of ups and downs. Currently sitting at 157p, the shares are down 9% year to date and an equally disappointing 8% over the past 12 months. With inflation and interest rates still on the rise, the macroeconomic situation looks pretty bleak. These factors have crushed the BT share price over the past six months and it’s fallen almost 20%. However, I’m using this opportunity to buy some beaten-down bargain stocks – and BT is one of them.
Why the shares are down
There are a few reasons why BT shares have struggled lately. First, the group released its Q1 FY23 results at the end of last month. Revenues rose a meagre 1%, but profits fell by over 10% compared to the year before. Some 7% of this drop came from the group’s enterprise division, which has been hammered by rising costs. CEO Philip Jansen highlighted the “ongoing challenges” of the current market as the primary reason for the drop in profits.
Aside from the company, the macro economy is doing BT no favours. Inflation has been skyrocketing, surpassing 10% in the UK in July. Central Bank economists are predicting these numbers to keep rising throughout the remainder of 2022. Higher inflation is being coupled with interest rate hikes, which most recently brought the UK central bank rate to 1.75%. Rising rates can deter investors from speculative assets like stocks as they can achieve a higher risk-free return on ‘safer’ assets. These recent developments are another reason why BT shares have struggled.
At 157p, BT shares trade on a price-to-earnings ratio of 12. On the surface, this looks like okay value to me. However, comparing it to close competitor Vodafone, which trades on a higher P/E ratio of over 20, I see good value. Coupling this with BT’s 4.9% dividend – comfortably above the FTSE 100 average of just under 4 – I’m even more attracted to the stock.
In reality, it may be even cheaper. The value of BT’s assets equates to around 90p per share. Knocking this off the current share price, the shares fall to a theoretical value of 69p. Using this figure, the P/E ratio for the shares would be just 4.8. The value really shines through when considering this. The asset-rich nature of the stock could also help me protect against rising inflation.
Why I’d buy
Overall, I think BT is a good example of a stock that has been beaten down by bearish market sentiment when not much has actually changed within the business. Not only do its pre-existing assets help protect against rising costs, but their value helps highlight the value of the shares. Considering all of this, I’m looking at opening a BT position in my portfolio.
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Dylan Hood has no position in any of the shares mentioned. The Motley Fool UK has recommended Vodafone. 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.