Buying shares of BT Group (LSE:BT-A) is a popular move by many UK investors. Even financial institutions like BlackRock and Vanguard are some of the most prominent shareholders. Seeing a herd mentality in the stock market is not uncommon, but is it warranted in the case of this business? Let’s take a closer look at how the stock has performed over the years and whether I should join the herd.
BT shares’ performance
Despite having a high standing among professional and individual investors alike, BT stock hasn’t been a great performer over the last half-decade. In fact, over the five-year period, it has fallen by a staggering 47%. That means a £1,000 investment in January 2017 would now be worth around £530.
By comparison, the FTSE 100 index has delivered returns of around 3.3% over the same period. That’s not exactly an exciting performance either, as it fails to beat current inflation. But it’s a drastic improvement compared to losing half of the capital invested in BT shares. What happened?
Investigating the problem
This company is big, very big, with a lot of moving parts. As such, there are several contributing factors behind the stock’s disappointing performance. However, one of the most important issues, in my mind, is the management team.
For years, competing telecommunications and internet providers have been chipping away at BT’s market share. And with insufficient defences being deployed by leadership, revenue and profits have been steadily falling along with dividends.
Meanwhile, the business continues to have many high fixed costs related to developing and maintaining its infrastructure. And with profit margins disappearing, its reliance on debt financing has been climbing.
Needless to say, this is not what a thriving business looks like. At least, I don’t think so. But despite the issues of the past five years, over the past 12 months, shares of BT have actually started rising by double-digits. So much so that a £1,000 investment in January 2021 would now be worth around £1,280. Is this just because of the pandemic recovery? Or is there something more happening under the surface?
A glimmer of hope for BT
The first step in solving a problem is recognising that there is one. And that’s precisely what BT’s management has done. After admitting its complacency to shareholders, the group has unveiled a £15bn comeback investment programme.
The goal is to drastically expand its fibre optic infrastructure to cover 25m homes by 2026. Given that there are currently around 30m homes in the UK today, the company may recapture its lost market share if the plan succeeds.
On the telecommunications front, its 5G network rollout is progressing rapidly. According to its latest earnings report, BT has already acquired more than 5.2m 5G customers. And with legacy products being phased out, the growth capabilities of BT shares are improving, I feel.
Time to buy?
Shares of BT may have been underachievers these past few years. But those days might now be behind the stock. So will I buy? Not for now. I’ll wait to see how the progress continues over the next few months before deciding whether to invest. If the company can reverse the downward trajectory of profits, and shrink its pile of debt, then perhaps I’ll decide its popularity is warranted.
