Should I snap up ITV stock at under 69p?

ITV stock is now about as cheap as it’s been for the last 10 years. Is 69p a good entry point for me in the British TV broadcaster?

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

British Pennies on a Pound Note

Image source: Getty Images

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

After reaching an all-time high in 2015, ITV (LSE: ITV) stock has been dropping like a stone. It’s lost 75% in value since then and has fallen out of the FTSE 100. Now I can pick up the shares for under 69p each. Sounds cheap. Am I buying?

The new Blockbuster?

Before I get into my reasons to buy, I want to look at that 75% fall in more detail. Because, on the surface, it sounds like a big discount. But I don’t want to make the common investing mistake of buying a stock on the way down. In other words, I don’t want to catch a falling knife. 

And in ITV’s case, the stock’s decline is easy to explain. The fall closely followed the rise of streaming services like Netflix, Amazon Prime Video and Disney+. Today, around 58% of UK households are subscribed to at least one of those services. 

If that’s a sign of things to come, then this might not be a great buy. Legacy broadcasters might be on the way out. ITV could be the new Blockbuster. But actually, I think there’s more to the story here.

7.54% yield

Surprisingly, ITV’s revenues and earnings are growing. Last year, the firm brought in sales of £3.7bn, the highest it’s been for 10 years. Net income looked good too. Those rival streamers haven’t made a dent in the financials so far.

And these cash flows mean a tasty-looking dividend too. If I bought in at 69p a share, I’d be looking at a 7.54% annual yield. One more in the ‘buy’ column for me, then.

In terms of valuation, the company now trades at around six times earnings. That’s down from 18 times in 2014 and 22 times in 2015. This makes the stock sound cheap, but also tells me investors aren’t bullish looking ahead.

The Love Island effect

The future really is the crux here for me. Can ITV keep growing revenues in the face of a threat from big tech? Or would I be buying a stock about to go the way of the dodo?

I think a lot is going to hinge on the firm’s rival streaming service ITVx. This service was rebranded last year in a move away from Britbox and ITV Player, and I see a couple of reasons it could be a relevant player.

For one, ITV has a great track record of live events like sports or reality TV shows. I’m not sure Love Island would have the same success without the live broadcasting aspect to it. Equally, I think there will always be demand for UK-focused programming too.

All in all, I’d say the firm’s prospects are better than the 69p share price would suggest. I’d be tempted by the value here if I had spare cash.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. John Fieldsend has no position in any of the shares mentioned. The Motley Fool UK has recommended Amazon.com and ITV. 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.

More on Investing Articles

Investing Articles

5 steps to start buying shares with under £500

Learn how this writer would start buying shares with a few hundred pounds in a handful of steps, if he…

Read more »

Young happy white woman loading groceries into the back of her car
Investing Articles

The FTSE 100 offers some great bargains. Is this one?

Our writer digs into one FTSE 100 share that has had a rough 2024 to date, ahead of its interim…

Read more »

Smiling white woman holding iPhone with Airpods in ear
Investing Articles

£9,000 of savings? Here’s my 3-step approach to aim for £1,794 in passive income

Christopher Ruane walks through the practical steps he would take to try and turn £9,000 into a sizeable passive income…

Read more »

Group of young friends toasting each other with beers in a pub
Investing Articles

I’d buy 29,412 shares of this UK dividend stock for £150 a month in passive income

Insiders have been buying this dividend stock, which offers an 8.5% yield. Roland Head explains why he’d choose the shares…

Read more »

Red briefcase with the words Budget HM Treasury embossed in gold
Investing Articles

Could the new UK budget spell growth for these 6 FTSE stocks? I think so!

Mark David Hartley considers six UK stocks that could enjoy growth off the back of new measures announced in the…

Read more »

Investing Articles

With a 6.6% yield, is now the right time to add this income stock to my ISA?

Our writer’s looking to boost his Stocks and Shares ISA. With this in mind, he’s debating whether to buy a…

Read more »

Dividend Shares

This blue-chip FTSE stock just fell 12.5% in a day. Is it time to consider buying?

Smith & Nephew is a well-known, blue-chip FTSE stock with a decent dividend yield. And its share price just dropped…

Read more »

Investing Articles

At 72p, the Vodafone share price looks to be at least 33% undervalued to me

Our writer looks at a number of valuation measures to determine whether the Vodafone share price reflects the fair value…

Read more »