While the BT Group plc (LON:BT.A) (BT.A.L) share price has risen from 203p to 253p in the last seven months, I think that the company continues to face an uncertain outlook.
The prospects for the FTSE 100 continue to be volatile, with issues such as Brexit, rising US interest rates and import tariffs having the potential to cause investor sentiment to come under pressure.
In terms of internal difficulties, BT remains a relatively disappointing stock in terms of its financial outlook in my opinion. The company is expected to post a fall in EPS in the next two years, and this could cause investors to demand a continued large margin of safety over the medium term. After all, this would make it five years in a row that the stock has experienced a declining bottom line.
Although there may be signs that the company is delivering on its updated strategy, ultimately it is not yet posting significant improvements to sales or profit. Its recent quarterly update showed relatively limited financial improvement to my mind at a time when a number of TMT stocks are delivering growing profitability.
Further changes could be ahead as the company’s new CEO commences work in the New Year. This could cause further instability for the stock if a revised strategy is put in place. In the long run, a new CEO may prove to be a good thing for the business, but changes to its operational focus could lead to a period of uncertainty.
With BT having a P/E ratio of around 10, I think it offers a large margin of safety at the moment. Investors have become more bullish about its prospects, but there seems to be a degree of caution being maintained. I think this is sensible, and could indicate that there is long-term recovery potential on offer. In the near term, though, I expect volatility to remain high.