How BT Group Measures Up as a GARP Investment

LONDON -- A popular way to dig out reasonably priced stocks with robust growth potential is through the "growth at a reasonable price," or GARP, strategy. 

This theory uses the price-to-earnings to growth (PEG) ratio to show how a share's price weighs up in relation to its near-term growth prospects -- a reading below 1 is generally considered decent value for money.

Today I am looking at BT Group  (LSE: BT-A  ) (NYSE: BT  ) to see how it measures up.

What are BT Group's earnings expected to do?

Metric 

2014

2015

EPS growth

(4%)

13%

P/E ratio

11.6

10.2

PEG ratio

N/A

0.8

Source: Digital Look.

Expectations of negative earnings growth in 2014 results in an invalid PEG rating, although the reading is expected to register around the value benchmark of 1 the following year as earnings growth resumes.

As well, BT Group currently trades above a price-to-earnings (P/E) ratio of 10 for this year -- I feel a reading below 10 generally indicates exceptional investor value -- and the rating is expected to fall very close to this marker in 2015.

Does BT Group provide decent value against its rivals?

Metric 

FTSE 100

Fixed Line Telecommunications

Prospective P/E ratio

16.6

15.6

Prospective PEG ratio

4.6

2.8

Source: Digital Look.

BT Group offers excellent value on a P/E basis compared with the FTSE 100 and its peers in the fixed-line telecoms sector. However, the communications specialist's void PEG rating for 2014 illustrates the firm's unattractive near-term earnings prospects versus both of these groups.

Nonetheless, I believe that BT Group is an excellent pick for long-term growth, even if its credentials as an immediate GARP candidate fall short.

"Triple play" gauntlet thrown down
BT Group's challenge to oust British Sky Broadcasting as the country's foremost telephone, broadband, and television provider has been well publicized since the company announced it would be launching its own BT Sport package to rival Sky's equivalent channels last year.

Indeed, its decision to offer the channels free to all broadband customers is a bold move which has certainly thrown down the gauntlet to the competition. The company has subsequently attracted a lot of custom from not only Sky but from subscribers to Virgin Media and TalkTalk.

Still, BT Group's potential growth story is not solely dependent upon its triple services operations as it also has significant opportunities elsewhere. 

For example, the firm has made huge inroads into the business sector in recent times, and still boasts a large share in both residential calls and line rental. The firm is also pushing its IT services and mobile operations, and broker Liberum Capital has identified this as an area for attractive growth.

The expert's guide for intelligent investors
If you already hold shares in BT Group, check out this newly updated special report which highlights a host of other FTSE winners identified by ace fund manager Neil Woodford.

Woodford -- head of U.K. Equities at Invesco Perpetual -- has more than 30 years' experience in the industry, and boasts an exceptional track record when it comes to selecting stock market stars.

The report, compiled by The Motley Fool's crack team of analysts, is totally free and comes with no further obligation. Click here now to download your copy.


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