Has the BT share worth gone too far?

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The BT (LSE: BT.A) share worth has been flying just lately. It took the inventory a number of months to kick into life this 12 months. However after rising sharply in Might, it might probably’t appear to decelerate. Again in Might, the agency launched its full-year outcomes, which have fairly clearly left traders excited. Because the announcement, its shares have shot up by practically 15%.

12 months so far, the inventory’s up 18.4%. Within the final six months, it’s climbed a whopping 37.2%. The FTSE 100‘s up 4.3% throughout the identical interval.

However whereas its rise in latest months has been spectacular, it begs the query, has the inventory peaked, or may or not it’s that proper now it’s too good to cross? With out additional ado, let’s delve in.

Valuation

So the enterprise clearly has momentum on its facet. However is there any worth left within the inventory? There are a number of metrics I can use to reply that. The primary is the important thing price-to-earnings (P/E) ratio. BT at the moment trades on a P/E of 17.3.

In comparison with the FTSE 100 common of 11, which will look overvalued. That mentioned, BT’s cheaper than main rivals equivalent to Vodafone (21.4) and Deutsche Telekom (25.9).

What’s extra, its ahead P/E is simply 5.7. That appears like good worth for a corporation of BT’s stature.

Dealer forecasts

That low-cost valuation could also be why analysts predict the inventory to maintain rising within the 12 months forward. Fifteen analysts providing a 12-month goal worth have a median of 200.1p. That represents a 35.1% premium from BT’s present worth. Of these, the best is 290p, which is 95.8% larger than the place the inventory’s sitting proper now.

Chunky dividend

In fact, analysts’ forecasts might be incorrect. Nonetheless, I believe they’ll present an excellent information. What’s extra, other than consultants being bullish, the inventory additionally sports activities a 5.4% dividend yield.

Its payout’s comfortably lined by earnings. And whereas its yield has fallen during the last couple of months resulting from its share worth surge, it’s nonetheless comfortably above the FTSE 100’s 3.6%.

Debt burden

But whereas that’s all nicely and good, I see a number of main points with BT. The primary is its heavy debt.

The agency’s internet debt at the moment sits at round £20.6bn. That’s a monumental pile and nearly one and a half instances BT’s market capitalisation. What’s extra, with the UK base charge sitting at 5%, excessive rates of interest will solely make this costlier to service.

On high of that, one other fear of mine is competitors. Granted, the enterprise is within the technique of implementing its long-term plan. Nonetheless, it’s alarming that BT has been shedding clients, particularly to smaller and extra nimble competitors. That’s a pattern I’ll be watching carefully within the months to return.