The BT (LSE:BT-A) share price has been on a downward trajectory since the middle of 2021. Will this change as we enter November? Let’s take a look at what might go right and, conversely, what might go wrong.
BT share price: reasons to be optimistic
Perhaps the most pertinent reason for thinking the selling pressure may reverse is talk that the company is readying itself for a takeover bid.
Now, labelling the commications stalwart as a potential target isn’t exactly new. However, last week’s news that CEO Philip Jansen had instructed advisory firm Robey Warshaw to work with Goldman Sachs to resist advances from French billionaire Patrick Drahi’s firm Altice has reignited rumours.
Based on its current valuation, I can see why Altice might be interested. Yes, BT’s share price has climbed a very solid 41% in the last 12 months. Nonetheless, it’s still 61% down on where it stood in October 2016. For context, the FTSE 100 index in which the company features is up 8% over the same five-year period. This, coupled with the fact that its stock currently changes hands for seven times earnings, arguably places BT in deep value territory.
On top of this bid speculation, there’s a chance that next month’s half-year numbers (4 November) could prove better than expected. After all, BT said that it expected trading conditions “to see some improvement through the year” back in July. Confirmation of the sale of BT Sport could also boost sentiment. The recent launch of Eagle-i, BT’s cybersecurity platform — another potential revenue spinner — is another encouraging development.
Having said all this, it’s not hard to come up with reasons why the BT share price may continue to drift downwards next month and beyond. The first is that a bid simply might not materialise.
Considering BT’s finances, one wouldn’t be surprised. Its pension deficit woes and fragile balance sheet are widely known. Even if an offer were forthcoming, any initial boost might quickly reverse as regulators get involved.
Away from takeover talk, the company faces competition for broadband customers should Sky push through with a potential investment in Virgin Media O2. That’s concerning considering how much BT is planning to spend to extend its fibre network in Britain (estimated £15bn).
Aside from stock-specific risks, there are other things for investors to ruminate over. Not-quite-so-transitory inflation is grabbing headlines and supply chains remain disrupted. The pandemic continues to rumble away in the background. In such a tense environment, it might only take something small to bring forth a correction or (whisper it) market crash. Will investors dash to BT for safety? I doubt it.
As a Foolish investor, I don’t think it’s wise to buy a stock solely on the belief that it will soon be snapped up by a deep-pocketed suitor. Moreover, trying to predict the exact movement of a share price over a short period of time is up there with witchcraft and wizardry. A better question to ask, therefore, is whether the odds are in the favour of prospective buyers right now.
Having considered both sides of the debate, I’m probably ever-so-slightly bullish. However, I can think of far better destinations for my capital in the FTSE 100. This is especially the case when it comes to looking for dividends to help maintain my buying power as prices rise.
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Paul Summers 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.