One FTSE 250 share I have high hopes for is ITV (LSE: ITV). However, the ITV share price has had a rotten 2022, crashing hard since February. Even so, this stock could well be one of my star buys for long-term returns.
The ITV share price plunges
It’s been a rough and rocky road for the ITV share price this year. At their 52-week high almost a year ago, the shares briefly hit 127.19p on 12 November 2021. Since then, they’ve collapsed, plunging to a 52-week low of 53.97p on 29 September. How I’d have loved to have bought stock at such a low price.
Here’s how this popular share has performed over seven different timescales:
| One day | -0.6% |
| Five days | 2.1% |
| One month | 16.8% |
| Six months | -3.8% |
| 2022 YTD | -38.1% |
| One year | -38.9% |
| Five years | -56.4% |
Over the past 12 months, the ITV share price has plummeted by almost two-fifths, while it has plunged by more than half over the last half-decade. These returns exclude cash dividends, which would have lifted returns by several percentage points each year.
We own ITV shares
In late June, my wife bought a modest stake in ITV at an all-in price (including stamp duty and buying commission) of 68.4p a share. Amusingly, that’s almost exactly where the ITV share price closed at on Friday, 4 November. What a coincidence.
As I said, I’m gutted that I missed the opportunity to buy ITV when its share price nosedived below 54p five weeks ago. Since then, the shares have surged by more than a quarter, leaping in value by 26.7%. Never mind.
Is ITV a fallen angel or a falling knife?
One old stock-market saying warns: “Never catch a falling knife.” In other words, don’t rush to buy shares just because they’ve plunged in value. My personal approach is to look for ‘fallen angels’ — quality companies whose share prices have been driven down to bargain-basement levels.
Also, my acid test for deciding whether I’d buy shares in any company is this: had I sufficient funds, would I buy the entire business? Right now, I’d be happy to buy ITV outright for its current market value of just over £2.7bn. For that low, low price, I would own the UK’s #1 terrestrial commercial broadcaster, as well as a leading content provider for media companies worldwide.
I see ITV as a hidden gem
Indeed, I wouldn’t sell our existing shares at anywhere near current prices. At the current share price, the stock trades on a miserly price-to-earnings ratio of 5.8, which works out to an earnings yield of 17.1%. This is around 2.4 times the earnings yield of the FTSE 100 (of which ITV was until recently a member).
Also, the dividend yield of 7.3% a year looks very attractive to me as an income-seeking investor. Even better, this cash yield is covered 2.3 times by earnings. To me, this suggests that the payment is both rock-solid and offers plenty of room for uplifts.
Of course, there are worries for the business about collapsing consumer confidence, rising interest rates and sky-high bills, plus threats to corporate-advertising budgets. But I still see ITV as offering an excellent risk/reward profile for the long term. Indeed, I may even buy more shares before 2022 is out!
