Last week produced a rare ray of sunshine for BT Group (LSE: BT.A) shareholders. The BT share price rose steadily all week and continued rising on Tuesday. Over the past week, BT shares are the fifth-best performer in the FTSE 100 index. Could this be the start of a long-awaited comeback for the stock?
BT shares surge since March
In late February, the BT share price was sagging. On 26 February, it closed at 123.55p. As I write, the shares trade at 168.35p. That’s an increase of 44.8p — more than a third (36.3%) — in just over two months. This was a much-needed shot in the arm for BT.A, which has pretty much been in free-fall since 2015.
Since Tuesday, 27 April, the BT share price has gained 9.75p (6.1%). Also, the stock is up over one month (+6.6%), three months (+27.9%), six months (+62.7%), and one year (+42.1%). However, as with many other FTSE 100 stocks, BT shares plunged in 2020 as Covid-19 spread.
The BT share price has bombed since 2016
The BT share price has soared since Halloween 2020, but has been a long-term dog for shareholders. Over two years, BT stock is down 28%; it has lost 33.9% over three years. Over five years, the loss is a gruesome 62%. Up until 2020, I’d need a gun to my head to get me to buy BT stock. But in 2020–21, I see long-awaited recovery potential for BT shares, so I’ve changed my mind.
BT returns to its roots
The BT share price hit its post-2000 peak above £5 in late 2015, but that’s long ago. Recently, BT’s corporate story has been one of managed decline. Its revenues and net income have been shrinking since 2017. But I’m genuinely optimistic that the telecoms giant might stage something of a comeback.
One interesting development came last week: BT is considering selling its BT Sport arm to a rival media corporation. In these early-stage discussions, big names in the frame include The Walt Disney Company and Amazon. I’ve long been wary of BT’s foray into sports broadcasting, given the sheer financial firepower of rivals such as Sky. Ditching its sports division could free up well over £1bn a year to invest in BT’s core businesses. By returning to its roots in telephony and broadband, the company has a decent chance of boosting the future BT share price.
Would I buy BT.A today?
In common with many FTSE 100 firms, BT suspended its dividend in 2020. Even without Covid-19 to blame, this cash pay-out needed trimming. This cutback will free up valuable cash to support future growth (especially in Openreach, BT’s highly profitable infrastructure division). Also, higher cash flow could help tackle BT’s £17bn of net debt and strengthen its balance sheet.
Would I buy today with the BT share price at just over 168p, for a market value of £16.4bn? I think so, although I would probably wait to see the full-year results due on 13 May. Also, given BT’s recent chequered history, I’d tread carefully. For BT stock to really captivate me, I’d like to see free cash flow of £1bn to £1.5bn. However, if yearly capital expenditure soars beyond £3bn as BT Openreach rolls out UK-wide full-fibre broadband, then I’d certainly think twice about holding BT shares!
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John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Cliffdarcy has no position in any of the shares mentioned. The Motley Fool UK owns shares of and has recommended Amazon and Walt Disney and recommends the following options: long January 2022 $1920 calls on Amazon and short January 2022 $1940 calls on Amazon. 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.