Thinking of buying FTSE 100 member ITV’s share price after 10%+ fall? Read this first

The prospects for ITV plc (LON: ITV) in the short term could be challenging compared to those of the FTSE 100 (INDEXFTSE: UKX).

| 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.

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.

The performance of the ITV (LSE: ITV) share price has been hugely disappointing in the last two months. It has fallen by over 10% at the same time as the FTSE 100 has declined by less than half that amount. Investors, it seems, are feeling relatively downbeat about the company’s future prospects.

While in the near term they may be correct, in the long run, the stock’s valuation suggests that it may offer excellent value for money. At a time when a number of shares, including one stock that released results on Tuesday, appear overvalued, ITV’s share price could have long-term investment potential.

High price

An example of a stock which may be overvalued at the present time is Midwich (LSE: MIDW). The specialist audio visual distributor reported positive interim results on Tuesday which showed a rise in revenue of 25%. Adjusted earnings increased by 23% on a per share basis to 12.09p, with the company’s overall performance being strong. It was able to generate double-digit revenue and profit growth in all territories, while investment in new geographies and the development of specialist broadcast, lighting and audio segments boosted its financial performance.

Looking ahead, the company is expected to report a rise in earnings of 15% in the current year, followed by further growth of 8% next year. While this is an upbeat outlook which suggests that the stock is performing well, the investment potential of the company appears to be limited. It trades on a price-to-earnings (P/E) ratio of 27, which indicates that it lacks a margin of safety at the present time.

Low valuation

In contrast, the ITV share price appears to be dirt-cheap after its recent decline. It has a P/E ratio of around 11, which indicates that it offers scope to trade at a much higher level than at present. In the short run, the company’s financial outlook may appear to be downbeat, with earnings set to decline by over 3% in the course of the next two years. But with it having a dominant position in the television advertising market, the long-term growth prospects for the stock remain bright.

As a cyclical company, periods of disappointing financial performance are not unusual for ITV. In fact, they provide long-term investors with the opportunity to buy the stock at a low price, with improving earnings performance often being a good time to sell after making a profit.

While it may take a number of years for the stock to return to previous highs, it seems to have the right strategy and a sound management team through which to deliver improved performance. As such, and at a time when a number of FTSE 100 shares are trading on high valuations, now could be the right time to buy the company for the long run. While it may disappoint in the near term, its potential to deliver high total returns in the coming years still seems to be significant.

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.

Peter Stephens has no position in any of the shares mentioned. The Motley Fool UK has recommended 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

Could the JD Sports Fashion share price double in the next five years?

The JD Sports Fashion share price has nearly halved in the past five years. Our writer thinks a proven business…

Read more »

Bus waiting in front of the London Stock Exchange on a sunny day.
Investing Articles

If interest rate cuts are coming, I think these UK growth stocks could soar!

Falling interest could be great news for UK growth stocks, especially those that have been under the cosh recently. Paul…

Read more »

Investing Articles

Are these the best stocks to buy on the FTSE right now?

With the UK stock market on the way to hitting new highs, this Fool is considering which are the best…

Read more »

Petrochemical engineer working at night with digital tablet inside oil and gas refinery plant
Investing Articles

Can the Centrica dividend keep on growing?

Christopher Ruane considers some positive factors that might see continued growth in the Centrica dividend -- as well as some…

Read more »

Smiling family of four enjoying breakfast at sunrise while camping
Investing Articles

How I’d turn my £12,000 of savings into passive income of £1,275 a month

This Fool is considering a strategy that he believes can help him achieve a stable passive income stream with a…

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

2 top FTSE 250 investment trusts trading at attractive discounts!

This pair of discounted FTSE 250 trusts appear to be on sale right now. Here's why I'd scoop up their…

Read more »

Smiling young man sitting in cafe and checking messages, with his laptop in front of him.
Investing Articles

3 things that could push the Lloyds share price to 60p and beyond

The Lloyds share price has broken through 50p. Next step 60p? And then what? Here are some thoughts on what…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

£1,000 in Rolls-Royce shares a year ago would be worth this much now

Rolls-Royce shares have posted one of the best stock market gains of the past 12 months. But what might the…

Read more »