BT’s (LSE: BT.A) share price has risen 21% from just before the firm released its 2024 results on 16 May.
Such a rise can cause some investors to be wary of buying a stock for fear that the price has peaked. For others, the overriding fear may be not wanting to lose out on potential further gains in the shares.
In my experience as a former investment bank trader, neither fear nor greed produces good investment decisions over time.
The only question I ask when faced with such a price rise is whether there is any value left in a stock. If there is, then I will decide whether to buy it based on my investment priorities at the time.
Is there value in this share?
A key valuation measure I always start with when assessing a stock is the price-to-earnings ratio (P/E).
BT currently trades at a P/E of 16.4 against the average P/E of its competitors of 20. These comprise Orange at 14.1, Vodafone at 19.8, Telenor at 20.3, and Deutsche Telekom at 25.9.
So, it is cheap on this basis.
To ascertain by how much in cash terms, I ran a discounted cash flow analysis using other analysts’ figures and my own.
This shows the shares to be a stunning 73% undervalued at their present price of £1.43, despite their recent rise.
Therefore, a fair value for the shares is £5.30. They may go higher or lower than that, of course, given the vagaries of the stock market.
A high-growth, high-yield business
A risk for BT is that stiff competition in the telecoms sector impacts its profits over time. Another is that its ongoing infrastructure build-out is delayed for some reason.
However, CEO Allison Kirkby said in the 2024 results that BT had connected customers to the next-generation networks at record speed and efficiency.
She added that the firm had passed peak capital expenditure on its full-fibre broadband rollout. And she underlined that it had also achieved its £3bn cost and service transformation programme a year ahead of schedule.
The firm expects EBITDA of around £8.2bn in 2025 and consistent growth after that.
Consensus analysts’ estimates are for BT’s earnings to grow by 11.6% every year to end-2026.
I bought the stock in August… so did Carlos Slim
Given these results, BT stock looked way too undervalued for me to ignore. Its very good yield of 5.6% was also a major positive factor going for it as far as I was concerned.
Consequently, I bought the shares on 13 August at £1.41. I am also looking to buy more very soon.
On a somewhat different scale, 29 August saw legendary billionaire investor Carlos Slim increase his stake in BT to 4.305%. He had bought an initial 3% stake after BT’s 2024 results as well.
My guess is that he sees the same exceptional value in the stock as I do.
A BT spokesperson seems to think the same thing, saying after his purchase: “We welcome all investors who recognise the long-term value of our business.”
