During the first half of this year, the BT (LSE: BT.A) share price seemed to be riding high. Between the beginning of January and the end of June, the stock returned more than 50%.
However, since then, investors have been turning their backs on the business. From its 52-week high of 207p, printed in the middle of June, the stock has lost nearly a third of its value.
So, what is happening to the BT share price? And will this trend change anytime soon?
Competitive market
BT has always had issues fending off competitors. For the past few years, competitors have grabbed market share from the incumbent as it has not been spending enough to entice customers to remain.
Customers have found better deals and better service elsewhere.
This is beginning to change. BT is investing more and focusing on what it does best, providing broadband and telecommunications services.
To that end, it has been reported that the streaming service DAZN is in advanced talks to buy BT Sport. The sale of this division has been rumoured for some time, and I think it is the right decision. It will allow the group to concentrate on its fibre broadband and mobile telecoms business EE.
Unfortunately, this transition is coming at a cost. The group is investing billions over the next few years to expand its fibre broadband network. This seems to be one of the reasons why the BT share price has been falling. Investors seem to be concerned about the impact this spending will have on profitability and shareholder returns.
At the same time, there has been speculation that Virgin and Sky are nearing a deal to work together in the UK broadband and pay-TV market. This would create a formidable competitor to BT. It would almost certainly have an impact on the group’s ability to retain customers.
BT share price outlook
Considering all of the above, I think it is easy to see why investors have become skittish. The next few years will be a period of transition for BT, and it is impossible to say at this stage how the company will look when its transformation is complete. Some investors may not want to stick around to find out.
However, I think the company has the size and the scale required to master the market. It may face increasing levels of competition, but now BT is focused on improving customer service and expanding its network, it has the resources to fight off competitors.
As such, I think the BT share price offers a compelling opportunity at current levels. That is why I would buy the company for my portfolio as a turnaround play.
I realise this may not be suitable for all investors, as it is impossible to say at this stage if BT will emerge victorious. The group will have to overcome some considerable challenges in the next few years. Some investors may not want to take part in this turnaround.
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Rupert Hargreaves 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.
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