It would be a fair statement to say BT (LSE:BT.A) shares have performed poorly for a few years now. Based on past performance and a slight resurgence in the past calendar year to date, could I consider the BT share price as a FTSE 100 opportunity for my portfolio? Let’s take a look.
BT share price on the up in 2021
Five years ago the BT share price was 431p, which means it has dropped 59% based on current levels. The Covid-19 pandemic and ensuing market crash last year saw its share price drop from 154p per share to 100p per share.
As I write, BT shares are trading for 174p a share. This a 28% increase in 2021 to date. So there are signs of life from the FTSE 100 incumbent.
3 reasons to be optimistic about the BT share price
Firstly, insiders are buying BT shares, which is always a positive sign in my eyes. CEO Philip Jansen purchased approximately £2m worth of shares last week. Insiders don’t buy stock if they feel performance isn’t on the up. In addition to that, as the CEO, Jansen will have an inside track on developments at the FTSE 100 incumbent.
Linked to insiders buying shares, BT’s management as a whole is exuding confidence about future prospects. In the full-year results for the year ended 31 March, management noted that a few uncertainties and barriers (such as a pension valuation and the Wholesale Fixed Telecoms Market Review) had been removed.
These had been affecting performance and contributing to the dwindling BT share price. Management is predicting consistent and predictable growth. There is no guarantee that predicted growth is achieved, although the confidence is good to hear.
Finally, broker sentiment towards BT has improved recently. In one of the most recent examples, Barclays decided to raise its price target to 190p from 170p. At current levels, this could be the right prediction on Barclays’ part.
FTSE 100 opportunity or one to avoid?
I believe the BT share price is currently quite cheap. As is BT’s overall valuation. It has a price-to-earnings ratio of eight, which is below the FTSE 100 average of nearly 17. I think that if BT’s plans and optimism come to fruition, its value will increase.
I do have some serious reservations when it comes to BT shares. Firstly, it has over £17bn worth of debt. Debt levels are something I refer to when looking to make investment decisions. In addition to debt, BT hasn’t actually been very profitable which makes me believe this debt will weigh down the BT share price and its overall investment viability. Its return on capital employed (ROCE) is very low for the past three years.
Overall, I would not buy BT shares for my own portfolio, despite the cheap valuation. I wouldn’t class BT as a quality company to invest my hard-earned cash in right now, and I believe there are better stocks out there right now.