Is BT Group worth the share market at 138p?

Looking back, we know that Rolls-Royce the share price between 2020 and 2022 was the agreement of the stock market. Therefore, it makes sense that there are probably other golds FTSE 100 the odds are staring us in the face.

It is possible BT The group (LSE: BT.A) stock into one? Let's take a look.

A price trap

I started considering BT shares a few years ago and now I'm glad I didn't invest. They fell by 62% over ten years and 15% over five years.

BT has long been a value trap. This is when the stock looks like a shiny coin because its price is low. But instead of multiplying, it traps investors by staying stuck in the bargain bin or falling even further.

This could be due to any number of reasons, such as poor prospects, underlying problems, or repeated reductions in profits (which lowers investor confidence). I'd say BT ticks all those boxes.

First, it operates in a mature telecommunications industry with low growth prospects. It has had a long-standing debt crisis, and its long-term dividend growth record is appalling.

BT dividends per share (2005-2023)

Smart investors see value

Since I last considered BT shares in April, they are up 32%. They also jumped 6.2% to 138p today (12 August) after it was announced that Indian billionaire Sunil Bharti Mittal's conglomerate would buy a 24.5% stake in BT's biggest shareholder.

Commenting on the investment, Bharti said: “BT has a strong portfolio of market-leading products, high-quality assets and an experienced management team…BT is playing a key role in extending access to fiber broadband infrastructure to millions of people across the UK.”

The stake, valued at £3.2bn, is clearly a positive development for shareholders. Interestingly, the Bharti conglomerate has yet to apply for a seat on BT's board, a vote of confidence in the changes made by new CEO Allison Kirkby.

In June, Carlos Slim, the Mexican telecommunications billionaire, separately paid £400m for a 3% stake in BT. So many industry veterans see great value here. Now I wonder if I should go in too.

FTSE 100 deal?

Looking at BT's revenue, one thing you have to admit is that it's incredibly volatile.

Despite this lack of top-line growth, the stock can still be a solid investment. That's because BT's free cash flow is expected to improve now that its major investment in expanding full fiber broadband is likely to increase significantly.

Indeed, the group sees average free cash flow reaching £3bn by 2030, up from £1.3bn last year. This is important because BT still has a huge debt position of around £20bn.

Along with paying down debt, this money can support a growing dividend. The forward yield is currently 6% and appears to be well covered.

Meanwhile, the forward earnings ratio (P/E) is around 7.5. That's cheaper than both the wider FTSE 100 and BT's peer group. So I can see why industry investors are licking their chops at the potential money here.

However, I can't ignore BT's debt pile if this exceeds its £13.8bn market capitalization. It remains a major concern, as does stagnant revenue growth and increasing competition.

All things considered, I think there are better opportunities elsewhere for my money.