Ouch! Have I just missed a once-in-a-decade chance to buy cheap BT shares?

ouch! have i just missed a once-in-a-decade chance to buy cheap bt shares?

Frustrated young white male looking disconsolate while sat on his sofa holding a beer

Last time I looked at BT (LSE: BT.A) shares, I thought they seemed too cheap to resist and I was a whisker away from buying them.

I wasn’t the only one who thought the share price was heavily undervalued. JP Morgan Cazenove had just called it “ripe for a major re-rating”.

The shares were trading at just 6.75 times forward earnings while the forecast yield was a blistering 7.36%. That’s exactly the profile of the FTSE 100 stocks I’ve been buying for the last year, and with some success. I felt there was an unmissable opportunity here. So what stopped me?

FTSE 100 fear factor

A big issue is that BT has been a losing bet for years. The stock has crashed 31.71% over one year and 54.35% over five. I regularly considered catching that falling knife, and was glad I resisted. Was it really ready to recover?

Also, the company has major long-standing problems, such as a hugely expensive pension scheme, and £20bn of debt. Plus it operates in a competitive market. UBS had warned BT may be forced to slash its dividend in half, to keep it affordable.

A value trap and a declining income stream? That worried me. So what I did what did every time, and decided to keep a watching brief. Then I blinked and the share price went gangbusters.

On 16 May, BT published its full-year 2023 results. I spotted a headline saying it had reported a 31% drop in annual profits, and expected another big sell-off. So imagine my surprise (and dismay) to see the shares jump 10% instead. It’s never easy trying to second-guess the market.

CEO Allison Kirkby put the kibosh on my dividend fears, hiking it 3.9%. It looks a lot more sustainable today, with normalised free cash flow set to double from £1.5bn this year to £3bn by 2030.

Dividend income security

Kirkby said BT had reached an “inflection point” as its full fibre broadband rollout programme hit peak capex. The group also hit its £3bn cost savings target a year early and was targeting another £3bn in gross annualised cost savings by 2029.

Who cares if pre-tax profits crashed from £1.73bn to £1.19bn? Or that group revenues rose just 1% to £20.8bn? The market didn’t. Not this time.

At time of writing, the BT share price stands at 126.5p. It’s up 20% since I decided against buying at 105.35p.

Frankly, I’d feel a bit of a chump diving into BT shares today. As if I’m following the herd. Inevitably, they’re not as cheap as they were, trading at 12.8 times forward earnings. That re-rating has partly happened. I prefer to buy undervalued shares before they recover, rather than afterwards. I remind myself that BT still has a heap of debt.

So I won’t buy the stock today. I’ll revert to my watching brief, and hope another opportunity pops up over the summer. And that I don’t miss it this time.

Should you invest £1,000 in BT right now?

When investing expert Mark Rogers has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets.

And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if BT made the list?

See the 6 stocks

More reading

    Harvey Jones has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

    OTHER NEWS

    4 hrs ago

    Cowboys head coach Mike McCarthy 'getting fed up' with owner Jerry Jones: report

    4 hrs ago

    Who Should Steelers Hope Wins Training Camp QB Battle?

    4 hrs ago

    Goaltender's dad talks up the Oilers' chances of lifting the Stanley Cup

    4 hrs ago

    Phillies turn rare 1-3-5 triple play against Tigers, 1st since 1929

    4 hrs ago

    Discount Burger Check? Chiefs' Reid Shares Hilarious Commercial Story

    4 hrs ago

    'Devastating loss': Digital lending library, Internet Archive, removes 500,000 books after being sued by publishers

    4 hrs ago

    Iga Swiatek vs Coco Gauff vs Aryna Sabalenka vs Elena Rybakina: WTA ‘Big 4’ state of play ahead of Wimbledon

    4 hrs ago

    Would a Toronto byelection loss spell doom for Trudeau?

    4 hrs ago

    BlackSuit ransomware gang blamed for ongoing car dealership outages

    4 hrs ago

    'Unreal' injury-time equaliser saves football powerhouse

    4 hrs ago

    Nigel Farage accused of cosying up to the Kremlin by former NATO boss

    4 hrs ago

    Dagestan, in southern Russia, has a history of violence. Why does it keeps happening?

    4 hrs ago

    Marines revive a World War II airfield on Peleliu in Pacific pivot

    4 hrs ago

    Fortnite Brings Tilted Towers and Other Fan Favorite Locations, But With a Twist

    4 hrs ago

    Shadow of the Erdtree Puts the Cherry on Top of Elden Rings Main Strength

    4 hrs ago

    Anger erupts as Albo's governor-general is awarded payrise

    4 hrs ago

    Charo Makes Rare Public Appearance at Project Angel Food Event: 'Life Is Beautiful' (Exclusive)

    4 hrs ago

    Boozed-up England fans sing '10 German bombers' chant in Cologne

    4 hrs ago

    Show Respect: ‘Boys are surprised we talk about this, it’s become normalised’

    4 hrs ago

    After clash with prosecutor, judge reserves ruling on restricting Trump’s rhetoric about agents’ classified documents search

    4 hrs ago

    Peter Dutton’s nuclear plan ‘doesn’t deliver’ any ‘energy price decrease’ until 2040

    4 hrs ago

    Where to watch Netherlands vs. Austria live stream, TV channel, lineups, prediction for Euro 2024 match

    4 hrs ago

    China lunar probe to return to Earth with samples

    4 hrs ago

    Report: Knicks’ OG Anunoby declines player option, enters unrestricted free agency

    4 hrs ago

    Saints offensive line ranked 19th in the NFL

    4 hrs ago

    Senators acquire goaltender Linus Ullmark from Bruins

    4 hrs ago

    Why Qld feels like home for the Blues

    4 hrs ago

    Seahawks waive 3 undrafted free agents, make UFL champ signing official

    4 hrs ago

    Andrew Scott Frantically Runs to Hear Taylor Swift's ‘Style' at 'Eras Tour'

    4 hrs ago

    England’s Test series v New Zealand: Date, kick-off time and TV channel

    4 hrs ago

    Bills' McDermott Says Von Miller Has ‘Something to Prove’

    4 hrs ago

    US prosecutors want Boeing to face criminal charges

    4 hrs ago

    Finance Minister Michael McGrath set to become Ireland's new EU Commissioner

    4 hrs ago

    Red-hot Cardinals get huge boost in return of star catcher

    4 hrs ago

    How police use the mail to spy on you: 60,000 cases in last decade with little pushback

    4 hrs ago

    These 3 Republicans are Trump’s most likely VP picks

    4 hrs ago

    Roy Jones Jr. announces his son, DeAndre, died by suicide

    4 hrs ago

    Luxury Gyms, Like Equinox and Life Time, Are Taking Over Big Retail Spaces

    4 hrs ago

    Automobili Pininfarina PURA Vision wins prestigious Red Dot Award: Design Concept 2024

    4 hrs ago

    Pop legend Robbie Williams wears his AFL jersey to see if he still gets recognised in London - with some very surprising results