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The ITV share price is falling. Should I buy now?

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Lady holding remote control pointed towards a TV
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The ITV (LSE: ITV) share price has had a rocky six months. Its share prices are down 7% during this period and continue to slide after a brief period of recovery from the lows of the pandemic. It is currently trading at 112.4p, and over a five-year period its shares are down 42%. Is a rebound likely and is it worth adding ITV shares to my portfolio right now? Let’s find out.

Is this drop alarming? 

When I look at financials, ITV’s share price fluctuations seem arbitrary to me. Ad revenue took a nosedive during the pandemic with postponed productions. But the company has rebounded strongly. Its ad revenue in the first half (H1) of 2021 is up 29% and June 2021 ad revenue is up 115% compared to the same period in 2020. This is a strong bounce back but how does it measure up to ITV’s performance before the pandemic?

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H1 2021 external revenue of £1,548m is 4.8% ahead of H1 2019’s £1,476m. Current adjusted EBITA (earnings before interest, taxes, and amortisation) is £327m, the exact same value as H1 2019. This is an indication to me that the company is now slightly ahead of pre-pandemic levels, showing strong recovery.

Changing times

I suspect the emergence of online streaming services is a major deterrent to traditional scheduled TV programming. Recent research suggests that over 25% of TV viewership is now from online subscription video-on-demand (SVOD) services.

To counter the sudden growth of subscription-based video entertainment, ITV has adopted a ‘More than TV’ vision. The company now offers its own video-on-demand and subscription services.

ITV’s SVOD grew by 2.6m users and ITV Hub now has 33m registered accounts. The focus on growing online products has helped grow its viewership by 22.6% in 2021. Viewership on online services alone grew 6%, which signals to me that traditional TV broadcasters can successfully integrate newer forms of media consumption. I am impressed with ITV’s ability to offer its popular programs in multiple formats for consumers who prefer streaming to tuning in for the TV broadcast.

ITV share price

ITV’s share price valuation reveals a current P/E ratio of 12.4 times. This points to shares that are slightly undervalued at the moment. The board cancelled the interim dividend but “intends to propose a final dividend of 3.3p for the full year 2021.”

Share price growth over 2021 has been significant. At 72% since January 2021, ITV share prices have offered steady returns in the short term. When I look at the recent downtrend, it appears to me as a good buying opportunity.

H1 2021 financials look very promising. Although I expect H2 figures to be underwhelming in comparison, this does not mean that the business is performing poorly. A drop in earnings can be expected as consumer patterns return to normal. The major influx in ad revenue I discussed above will stabilise, which could cause a slight drop in earnings.

However, I feel that the accelerated ITV Hub growth, return of ad revenue, and impressive H1 2021 financials makes ITV shares a bargain at the moment. I have been watching ITV’s performance in the market to gauge trends. This will help me identify the right entry point. But there is no doubt that ITV remains an option for my long-term portfolio.

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Suraj Radhakrishnan 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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