Does the ITV share price make any sense?

12 days ago

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For a period, ITV (LSE: ITV) appeared to be regaining popularity among investors. In the first half of this year, its share price experienced a significant surge. However, despite being 23% up from the beginning of the year, it has recently started to lose momentum and is currently below its level from July.

I understand that this can be a bit perplexing. There are certainly many appealing aspects of the media company. However, its stock, which is already valued at just a few cents, appears to be stagnant and not making any significant progress.

What could be happening?

Persistent Issues With Unreliable Delivery

First of all, what could be causing the ITV share price to perform poorly?

Some investors believe that this company has already seen its prime days. In the past, owning one of the few national commercial TV networks was incredibly profitable. However, the media environment has become much more diverse, and audience preferences have changed significantly as well.

In response to this situation, ITV has been working to enhance its digital services. They've seen some success in this area, but there are a few hurdles to overcome. For one, expanding their digital operations requires significant investment, which can reduce overall profits. Additionally, the financial returns from digital broadcasting aren't as favorable as the profits that used to be generated from advertising on traditional television.

ITV's inconsistent performance in recent years has contributed to a lack of confidence among investors. This explains why the company's stock has dropped by 40% over the past five years.

Nevertheless, the drop in price has resulted in an increase in the dividend yield, even though the dividend per share remains unchanged. With a dividend yield of 6.5%, the FTSE 250 could serve as an attractive source of passive income.

This depends on the company keeping the dividend per share at its current rate, which it has repeatedly stated is its goal at the very least. However, that assurance is not guaranteed.

I believe the company has some strong advantages as well. Although a decline in advertising poses a threat, the broadcasting sector continues to generate substantial revenue. I anticipate that with a greater emphasis on digital broadcasting, the company will be able to expand its audience and possibly increase its earnings in the long run.

Furthermore, ITV operates a Studios division that generates revenue by leasing out its production facilities and offering its expertise to various broadcasters.

ITV Appears Cheap, Yet Holds Risks

Overall, I believe that the ITV share price is reasonably priced given the company's standing. With a market capitalization of £3 billion, ITV has a price-to-earnings ratio of 10.

However, the stock price has been declining recently, and it's obvious that not every investor feels as optimistic as I do about the possible value available.

Taking those risks into account, I believe ITV is a stock that investors might want to think about purchasing at its current value.

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