BT Share Price Soars! Is It Too Good to Miss?

This BT (LSE:BT.A) has been gaining some serious momentum recently. Despite a slow start to the year, the stock has really come alive in recent months. Its total gain since the start of the year is now 17.8%. However, over the past six months, the stock is up 40.8%.

While this growth is impressive, I wonder if BT has peaked or if it’s just too good to pass up now. That’s the question I’m going to answer.

To help with this, I think it’s worth taking a closer look at what’s been driving BT’s performance in recent months. The first factor is its full-year results, published in May.

In an update, CEO Allison Kirkby stressed that BT “has reached a turning point” as part of its long-term plan. At the same time, Kirkby announced that the company had delivered its £3 billion cost and services transformation programme a year ahead of schedule.

Good price?

But at its current price of 147.4p, is the stock worth anything? The key valuation metric I always use is the price-to-earnings (P/E) ratio. As you can see below, BT is currently trading on a P/E of 17.5.

Comparing this to the FTSE 100 average of 11 might make its shares look expensive. However, it is cheaper than rivals such as Vodafone (21.4) and German Telecom (25.9).

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What’s more, as the chart below shows, the P/E ratio is just 5.7. That looks very cheap.

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Dividend

So, going by that, it seems like BT still has a lot of room to grow. But then there’s the issue of its solid payout.

The stock boasts a 5.4% dividend, comfortably covered by profits. This has fallen in the past few months as the share price has risen. However, it is still above the Footsie average of 3.6%.

Last year, the company raised its payout by 4% to 8p. Looking ahead, analysts predict the payout could rise by as much as 6.1% in 2027 and 6.5% in 2029.

BT Problems

Its attractive valuation and passive income stream are enticing. But I have some concerns about BT. First, I find its high debt levels worrisome.

The chart below shows that its net debt now stands at £20.6bn. That’s an alarmingly high figure and almost 1.5 times BT’s market capitalisation.

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As such, the actions taken over the past few years have been impressive and clearly exciting for investors. However, the company has recently struggled to grow its revenue. For example, revenue grew by just 1% last year.

Should I buy it?

Add to this the threat of increasing competition, and I’m not sure whether BT is really what it seems at first glance.

While I certainly think this stock has attractive features, I see issues with it that keep me from buying it today.

The biggest risk is that BT is a company in transition and the path to prosperity is not guaranteed, which is a factor I have to consider. That said, these are stocks I will keep on my watchlist for now.