BT (LSE: BT.A) shares are popular at the moment. Last week, BT was the second most purchased stock on Hargreaves Lansdown’s investment platform (4.1% of all buys).
Should I follow the crowd and buy the FTSE 100 telecommunications stock for my own portfolio? Let’s discuss.
Why investors are piling into BT shares
I can see why BT shares are being snapped up by Hargreaves Lansdown investors right now.
For starters, after a big fall in the share price recently, the stock now looks dirt cheap. With City analysts expecting the company to post earnings per share of 20.9p this financial year (ending 31 March 2023), BT is sporting a forward-looking price-to-earnings (P/E) ratio of just 6.7 right now. That’s around half the median FTSE 100 P/E ratio of 13. So, there appears to be some value on offer here.
Secondly, there could be some big dividends on the cards. Last financial year, BT paid out dividends of 7.7p per share to its investors. And right now, analysts expect a payout of 7.8p for this financial year (dividends are never guaranteed). At the current share price of 139p, that equates to a yield of a very healthy 5.6%. That’s attractive in today’s choppy market, in which share price gains are hard to come by.
Finally, BT shares have received some favourable broker coverage recently. Last week, analysts at HSBC upgraded the stock from a ‘hold’ rating to a ‘buy’ rating. This is an encouraging development that could help improve sentiment towards the stock.
Is BT worth buying?
Having said all that, I struggle to get excited about this stock. Sure, it’s cheap, but I think that reflects the performance of the business.
In the company’s most recent trading update, for the three months to the end of June, BT posted revenue growth of just 1% year on year. Meanwhile, profit before tax was down 10%. Normalised free cash flow was -£205m versus -£43m a year earlier.
Looking ahead, analysts expect revenue for this financial year to be about 2% below last year’s figure. This lack of growth is an issue for me from an investment perspective.
Additionally, the company continues to have a huge pile of debt on its balance sheet. At the end of June, net debt stood at £18.9bn. This is an issue that can’t be ignored in the current environment. With interest rates rising rapidly, BT’s interest payments are likely to increase substantially. This could have a big impact on profits, and maybe even dividend payments going forward.
Looking at these numbers, there’s not much in the way of ‘quality’ here. So, a low valuation for the stock is probably quite appropriate, in my view.
Better stocks to buy
Given the lack of growth, and the mountain of debt, I’m happy to leave BT shares alone for now.
All things considered, I think there are better stocks to buy for my portfolio today.
