The BT share price soars by 20%. Here’s why I think it could beat the FTSE 100

A stock price graph showing growth over time

What a difference six months can make. That’s how long it has taken for the BT(LSE: BT.A) share price to gain 20%. And it has come at a time when the FTSE 100 has dropped significantly, with fears surrounding the prospects for the world economy holding back its performance.

Looking ahead, BT may continue to recover. It has appointed a new CEO, is delivering on its cost-reduction strategy and still appears to have a low valuation. Here’s why it could continue to outperform the FTSE 100 alongside another stock that released a positive update on Thursday.

Improving prospects

The company in question is multinational pharmaceutical group Hikma(LSE: HIK). It released a trading update having delivered strong performance since the start of the financial year. It has raised its guidance for the full year, delivering revenue and profit growth which is ahead of its expectations. Both its Generics and Injectables businesses are performing well, while in the MENA region, its Branded business is continuing to grow steadily. It is continuing to benefit from new product launches, as well as a diversified product range.

Alongside its trading update, the company also released news of a partnership with Vectura. It will develop and commercialise the company’s Open, Inhale, Close (OIC) dry product inhaler platform. With the generic respiratory market being a key growth area for Hikma, this could lead to improving prospects over the long term.

While the stock has a price-to-earnings (P/E) ratio of around 23, it seems to offer growth potential due to its improving financial prospects. Having gained 105% in the last year, the stock could post further capital growth.

Recovery potential

As mentioned, the BT share price has enjoyed a very positive six-month period. Its recent update showed that it has started to implement an aggressive strategy change which has seen 2,000 roles made redundant already. Further job cuts are ahead and, while they are painful for those involved, they could create a stronger business over the medium term.

The company has also announced the appointment of a new CEO. Although there is a risk that he will seek to make major changes and this could cause instability, the progress that is seemingly being made as a new strategy is delivered may mean that the company is in a stronger position by the start of 2019.

Despite its 20% rise in the last six months, BT continues to have a price-to-earnings (P/E) ratio of 9. This indicates that it may still be trading at a discount to its intrinsic value, which could suggest there is more scope for growth. Although it may have been one of the FTSE 100’s more disappointing shares in previous years, a new strategy and new management team could catalyse the company’s future performance. While uncertainty remains, it has the potential to keep beating the FTSE 100.

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Peter Stephens owns shares of Hikma Pharmaceuticals. The Motley Fool UK has recommended Hikma Pharmaceuticals. 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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