Should I buy ITV stock today?

The ITV stock price is on an upward trend in the past few months. Royston Roche analyses the stock to see if it’s a buying opportunity.

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The ITV (LSE: ITV) share price rose 40% in the past three months. I believe that the positive trading update in November and the start of vaccinations for Covid-19 drove these stellar returns. 

ITV stock fundamentals

ITV’s revenue grew at a compounded annual growth rate of 2.8% from 2017 to 2019. 2019 revenue was £3.3bn. Revenue for the nine months ended 30 September 2020 fell 16% year-on-year to £1.86bn. The drop in revenue was primarily due to the negative impact from the Covid-19. There is some positive news as the management mentioned that advertising trends are improving with Q4 forecast to be slightly up year-on-year. Also, 85% of the company’s productions in the UK and internationally that was paused due to Covid-19 were back in production or have been delivered.

It has two revenue segments: ITV Studios creates and produces content in the UK and internationally across 13 countries. Year-to-date nine months revenue fell by 19% year-on-year to £902m. The second segment, Broadcast, operates free-to-air commercial channels in the UK and delivers the content through linear television broadcasting and on-demand via the ITV Hub. Year-to-date nine months revenue fell by 13% year-on-year to £1.3bn. 

I looked into a couple of key performance indicators and think they are satisfactory. ITV total viewing hours increased by 2% year-on-year to 12.2bn and ITV Hub registered user accounts increased by 7% year-on-year to 32.1m. The company has a stable balance sheet. It had a net debt of £775m, as of 30 September 2020.

ITV content update

The ITV Hub achieved strong performance in the festive period between 21 December and 3 January, which grew 11% year-on-year. For the entire month of December, it had 81m programme streams, an increase of 5% year-on-year. With a total of 6.9m streams, Coronation Street was the most popular programme on the ITV Hub over Christmas. The return of The Masked Singer was also positive as it hit 0.5m streams on the ITV Hub. The company has secured a deal to bring The Masked Dancer to the UK, which was originated and successful in America. Good Morning Britain also got a very good viewership in December.

The trend continued in the month of January as the ITV Hub exceeded the targets for January 2021 for both consumption hours and monthly active users. The Bay is currently the ITV Hub’s most popular show across the month with 7m streams.

I am a bit worried that the company might lose some advertising revenues due to the negative impact from Covid-19. The recent national lockdown might also have impacted the company’s production in the fourth quarter.  The company is a new player in streaming services and has to face competition from Amazon, Disney, and Netflix.

ITV stock is currently trading at a price-to-earnings ratio of 14.59. The company is innovative and has been able to attract the younger generation’s viewership. I’ll keep ITV stock on my watchlist as I would like to wait for more details on the impact of Covid-19 on the company’s operations. 

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.

Royston Roche 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.

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