With the BT Group plc (LON:BT.A) (BT.A.L) share price having risen from 203p in May to its current level of 262p, it may be surprising to some investors that the stock still has a P/E ratio of 10.
This suggests to me that the stock has a large margin of safety even after its significant rise in recent months. Investors, it seems, remain cautious about the company’s future prospects.
I can understand why this is the case. The business is undergoing major changes at the moment, with it seeking to cut headcount in order to lower costs. In the most recent quarter, for instance, it reported a decline in job roles of 2,000. This could cause disruption to the business in the short run, although it may also allow it to become more efficient and flexible in the long run. In turn, this may make it more competitive versus peers.
BT faces a relatively challenging consumer outlook in my view. Consumer confidence is weak at the moment and while it has been able to improve customer satisfaction scores of late, which is encouraging, consumers may become increasingly price conscious over time. This may squeeze margins and/or sales growth across the industry and make it even more difficult to put into place a new strategy.
Given that the stock has a P/E ratio that is barely in the double-digits, I do think it is relatively cheap at the moment. However, it has been cheaper as its share price performance in 2018 shows, while it faces a number of risks to my mind. And with its EPS due to fall in the current year and next year, it could continue to be a difficult period for the business.
As a result, I’m optimistic about the prospects for the BT share price in the long run. But further volatility may be ahead in the near term in my opinion.