BT Group (LON: LON:BT.A) share price has surged in the past few weeks, hitting many short-sellers. The stock soared to a high of 135.95p in May, up by over 33% from its lowest level this year. This surge has pushed its market cap to over £13.2 billion.
Highly shorted company
BT Group, the biggest telecom company in the UK, has also become the most shorted company in the UK. Data shows that it has a short interest of 15.9%, including from the likes of Blackrock (NYSE:BLK). The other highly shorted companies in the UK are Abrdn, Hargreaves Lansdown (LON:HRGV), Ocado (LON:OCDO), and PureTech Health.
BT shares have surged after the company published better-than-expected financial results. Its revenue rose by about 1% to £20.79 billion in the last financial year.
However, as I wrote here, the company’s profit after tax dropped by 55% to £855 million while its profit before tax plunged by 31% to £1.18 billion.
The company’s biggest concern is its business division whose revenue dropped by 2% to £8.12 billion. Its consumer’s segment revenue rose by 4% to £9.8 billion while its Openreach business generated revenues of over £6 billion. Some analysts have been advocating for spinning off Openreach into a standalone company.
BT Group’s stock is still highly undervalued because of its slow growth and profits. It has a price-to-earnings (P/E) ratio of 6, which is lower than the FTSE 100 average of 18. It is also lower than the Vodafone’s multiple of 15. It has also become cheaper than other European telecom companies like Swisscom and Telefonica (BME:TEF).
Further, a Discounted Cash Flow (DCF) valuation metric shows that it is extremely undervalued. According to Simply Wall St, the company’s current price of 132.7p is a 79.15 discount to its fair value of 634p.
Analysts are generally bullish on BT Group, with Berenberg, Morgan Stanley (NYSE:MS), and UBS having boosted their outlook for the stock. The average target for the stock is 190p, much higher than the current 132p.
BT share price forecast
BT chart by TradingView
The daily chart reveals that the BT stock price made a strong bullish breakout after publishing its financial results last month. It jumped to a high of 135.95p, which was also its highest point in December last year.
The stock’s 50-day and 100-day Exponential Moving Averages (EMA) have made a bullish crossover. Also, the Stochastic Oscillator has moved to the overbought level while the Klinger Oscillator has continued rising.
Therefore, the stock’s outlook is neutral for now, with the next target to watch being at 135.95p. A move above this level will point to more upside, with the next level to watch being at 140p. On the other hand, a drop below the support at 125p will point to more downside.
This article first appeared on Invezz.com
