Is the ITV share price as dirt cheap as it seems?

Christopher Ruane reckons the ITV share price continues to look cheap. But could he be missing something other investors aren’t?

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As a shareholder in ITV (LSE: ITV), I have mixed feelings about its lacklustre share price.

As a long-term investor, I have no plans to sell at the moment. So whether the share price moves up, down, or sideways does not immediately concern me.

That said, a stubbornly low price could give me more opportunities to buy at what I think is a bargain level.

But if enough people look at what I think is a work of art and say it is not art at all, sooner or later I will wonder whether it is me that is wrong not them.

So is the ITV share price stuck in pennies for a reason?

ITV looks like it has an attractive valuation

I say ‘stuck in pennies’ because the share has consistently sold for pennies apiece for the past year and a half, or so.

Before a disastrous market update in March 2022 though, the ITV share price hit around £1.24. Over a five-year timeframe, it has tumbled around 52%.

Yet the company remains highly profitable. Last year, it made a post-tax profit of £435m. Its market capitalisation is now under £3bn. That means it trades on a price-to-earnings ratio of around 7, making it look dirt cheap to me.

Not only that, but the company has been using some of those profits to fund an annual dividend it aims to keep at 5p per share, or higher. At the current ITV share price, that equates to a dividend yield of 6.9%.

Unloved despite strong cash flows

Why is the City steering clear of ITV to such an extent? The presentation last year crystallised concerns about the current management style, raising questions about the firm’s ability to compete in a highly challenging media market.

However, the business remains highly profitable so I do not share such concerns, for the most part.

ITV is sometimes seen as yesterday’s business, as digital rivals threaten to eat into its advertising revenues. But digital platforms also give the content-rich ITV new opportunities.

Meanwhile, its legacy terrestrial television business may be declining but continues to give it a financial foundation scrappy start-ups lack.  On top of that, ITV’s production and studios business helps it profit from rivals’ success, by renting them space and helping them make programmes.

Sparse director buying

So I think the ITV share price really is dirt cheap. That is why I have been buying on multiple occasions this year.

I am surprised more directors have not also been buying with their own money, outside of company schemes. There has only been one such market purchase this year, when a director spent around £5,000 on ITV shares in March. That pales compared to a different director unloading £469,000 of shares last month.

Directors may have their own reasons to sell, such as personal financial obligation. But the lack of heavy director buying does make me wonder why board members do not seem as keen as me to grasp what I see as a bargain.

That said, I continue to see the shares as undervalued and have no plans to sell.

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.

C Ruane has positions in ITV. 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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