FTSE 100 telecom biggie BT (LSE: BT-A) is finally seeing an upturn in its share price, even if it is in fits and starts. The BT share price started its upward climb in November last year as the stock market rally started.
Or so it appeared. By early January this year, it had started plunging again and remained uncertain in February. But since the start of March, it has risen by an impressive 14%.
Can the BT share price rise continue?
I think the question for investors now is – can this rise continue? This question is important because there are at least two trends that suggest otherwise:
#1. The BT share price is back to its pre-crash levels now, in line with a trend seen across other FTSE 100 stocks. This means that there has to be fresh impetus for the share price to rise from here. Is there?
#2. When the stock market crash happened last year, the BT share price was already falling. In fact, it had been falling for a long time. So has anything changed fundamentally to allow a share price rise now?
What guides the BT share price?
The key point here is that there is a case for a rise in the BT share price if there are indeed positive fundamental changes at BT or if all shares prices are ready to rise on the back of sheer investor optimism.
The latest BT share price rally coincides with the departure of Chair Jan du Plessis. In his four years with the company, the BT share price halved. But the fact is that the BT share price had been falling since late-2015. The company has a bunch of issues to deal with, including a competitive market and a business that requires huge investments.
At least until early 2020 it had an impressive dividend yield. But even its dividends were cancelled last year, which left little incentive to buy the struggling stock.
What happens next?
I reckon that things can change for BT. It does intend to bring its dividend back. This should be a positive for income investors, going by BT’s high dividend yield in the past.
While its financials suffered a setback in 2019, the fact is that otherwise it is a resilient, profit-making company with a market-leadership position, even if it is not exactly the fastest growing. But that could change too.
And it is a cheap UK share right now. The company’s price-to-earnings ratio is at around 9 times.
The takeaway
I think on balance, the odds in favour of BT are even, considering the challenges it faces. Another stock market rally could tilt the odds firmly in its favour, though.
Otherwise, however, as much as I like the company (and have already bought the share in the post-Covid-19 world), I would watch for a few more signs of turnaround before buying it again now. Just to be doubly sure at an uncertain time.
