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For a while, ITV (LSE: ITV) seemed to be returning to favor with investors. The first half of this year has seen an intense stock rally. But while ITV's share price is still 23% higher than at the start of the year, it has lost momentum recently and is now lower than it was in July.
This is a bit confusing, I think. After all, there's a lot to like about a media company. But the company, which already has pens, doesn't seem to be going anywhere anytime soon.
What could be happening?
Constant problems, consistent delivery
First of all, what could be the reason for the weak performance of ITV's share price?
Some investors think this is a business whose best days are behind it. Owning a limited number of commercial national television businesses was a license to print money. But the media landscape is now more diverse – and so are audience preferences.
To combat that, ITV has been trying to strengthen its digital offering. It has been doing well in that regard but there are a few challenges. First, building the digital side of operations is expensive, eating into profits. Meanwhile, the economics of digital broadcasting aren't as attractive as advertising sales seem.
ITV's mixed performances over the years have not helped promote City. There's a reason stocks are down 40% in five years.
The potential value share is hidden in plain sight
However, that price drop has had the benefit of increasing the dividend yield while the dividend per share is flat. paid a dividend of 6.5 %. FTSE 250 it can be a juicy income generator.
That depends on the company keeping its payout per share at its current level, something it has said it intends to do less and less. That is not guaranteed though.
I think business also has great potential. While the decline in advertising remains a risk, the broadcast business remains an important cash spinner. Over time I expect more focus on digital broadcasting to help the company grow its viewership and potential revenue.
In addition, ITV has its own Studios business which earns revenue by leasing facilities and production technology to various broadcasters.
ITV looks cheap but has risks
On balance, I think ITV's price tag seems cheap for a company of its quality. The market capitalization is £3bn and ITV trades at a price-to-earnings ratio of 10.
But the share price has fallen recently and apparently not all investors share my enthusiasm for the potential value on offer.
Keeping those risks in mind however, I see ITV as a stock that investors should consider buying at its current price.
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