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The BT (LSE: BT-A) share price fell 5% this week as the release of its latest results saw shareholders hurry to offload their shares.
The FTSE 100 stalwart has struggled in recent years. And with the stock down 19% across the last 12 months, this epitomises the gloomy period that its shareholders have had to suffer. Five years ago, a share in the telecommunications giant would have cost me just shy of 210p. Today a share costs just 145p.
In true Fool fashion, I’m always on the lookout for stocks I can snap up for cheap and hold for years to come. So, could BT be my next target? Let’s explore.
BT update
The main reason for the tumble in the BT share price this week was the release of its full-year results. For the 12 months to 31 March, BT posted revenue of £20.7bn, beating expectations of £20.5bn, while adjusted EBITDA rose by 5% to £7.9bn. Yet despite this, its free cash flow had fallen 5%, to £1.3bn. Pre-tax profits also nosedived 12%.
However, the headline that largely caught investors’ attention was the major job cuts that the business plans to take in the years ahead. By the end of the decade, BT’s workforce will be reduced by over 40%, with this including BT employees and third-party contractors. This move feeds more widely into the firm’s cost-saving initiative, of which it announced it had saved £2.1bn towards a £3bn target.
With the stock falling 8% following the announcement, investors clearly didn’t take kindly to the news.
Should I buy?
Regardless of the news, does this fall present an opportunity for me to snag up some shares?
Well, there are certainly a few reasons why I like the look of BT. To start, the stock offers a substantial dividend yield of around 5.6%. With inflation set to continue to persist in the UK in the months to come, this offers me a hedge against high rates, to a degree.
The stock also looks relatively cheap, with a price-to-earnings (P/E) ratio just shy of eight.
However, I do have some major concerns with BT. The business finds itself sitting on a monumental pile of debt. And to make matters worse, a further £850m was added in the last year following pension scheme contributions. With the pile now sitting at nearly £19bn, this poses a major risk for BT. Further, with interest rates at highs not seen in years, this debt may become difficult to pay off.
BT also faces headwinds such as the impacts of the rising cost of living. Recently it was reported that one million people cancelled their broadband in the last year as inflation continues to squeeze people’s budgets. This drop in demand will likely have an adverse effect on BT in the months ahead.
So, while BT shares look cheap, I won’t be buying any right now. Its low P/E ratio and above-average dividend yield are certainly attractive. However, with issues such as its massive debt and uncertainty surrounding future job slashing, I’m steering clear of BT for now.
