The last time I covered ITV (LSE: ITV) shares was in April, shortly after the stock market crash. At the time, the FTSE 100 stock was about 60% below its 52-week high and I said that, in my view, it potentially had 50% upside.
For a while my prediction was looking pretty good. In the following six weeks, ITV’s share price rose from around 72p to 91p, a gain of about 26%. However, recently, ITV shares have lost their momentum and fallen back to 64p. This is disappointing for shareholders, myself included. So, why has ITV’s share price fallen? Let’s take a closer look.
Why have ITV shares fallen?
I can think of a few reasons why they’ve fallen since early June. Firstly, it seems a lot of investors are concerned about the threat of streaming services, such as Netflix and Amazon Prime. This is certainly a legitimate concern.
Indeed, my colleague Karl Loomes believes that, as a result of the increased popularity of streaming services, many businesses may not spend as much on TV advertising as they did. Karl thinks we could be seeing the start of a fundamental shift in the industry.
The fact that ITV hasn’t provided any clarity over advertising revenues since its first-quarter results in early May won’t have helped investor sentiment.
Institutional selling
Secondly, one institutional investor has recently offloaded a significant number of ITV shares. According to regulatory filings, The Capital Group has recently dumped around 205m shares. This selling activity reduced the investment management group’s stake in ITV from 9.99% to 4.91% as of 15 July.
That kind of heavy selling is likely to have put pressure on ITV shares. It could definitely help to explain why its share price has fallen recently.
Earnings downgrades
Another reason is that analysts have continued to lower their earnings forecasts for this year and next. Over the last month, for example, the consensus earnings per share (EPS) forecast for FY2020 has fallen from around 8.8p to 8.5p. Earnings downgrades can impact a company’s share price negatively.
ITV may exit the FTSE 100
Finally, it’s worth pointing out that ITV’s current market capitalisation is just £2.6bn. That makes it one of the smallest companies in the FTSE 100. If ITV’s share price doesn’t increase, it won’t be long until the stock is dumped from the FTSE 100 index. This could also be impacting sentiment towards the stock.
What’s next for ITV’s share price?
Can ITV’s share price recover? I still believe it can. First-quarter results in May weren’t great, but they weren’t terrible either. There were definitely some positives.
For example, the company said ITV Studios was seeing “good demand” for its library content internationally. Meanwhile, it said that it was seeing “good growth” for BritBox free trial starts and subscriptions.
Of course, there are plenty of risks here. However, if ITV can execute on its strategy to become a digitally-led media and entertainment company that creates brilliant content, there should be rewards for patient long-term investors.
