Down 27% and yielding 6.3%, is this FTSE 250 stock a bargain hiding in plain sight?

This Fool recently purchased FTSE 250 constituent ITV. But with its shares looking like a bargain, is it time to buy some more?

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I love the FTSE 250. Many businesses on the index often go under the radar. But over the years, it has proven it can still provide investors with substantial growth opportunities.

That’s why I opened a position in ITV (LSE: ITV) earlier this year. The broadcaster needs no introduction. Today, the company has a £3.2bn market cap. A share would set potential investors back 79.3p.

The stock hasn’t been the best performer in the last five years. But could now be a chance to snap up some undervalued shares?

Share price performance

Across that period, the stock is down 27.1%. For context, the FTSE 250 has climbed 7.8% higher during the same time. Safe to say investors who purchased ITV back then wouldn’t be best pleased with their investment so far.

Luckily, I picked up ITV just before the stock began to pick up pace. Year to date, it’s up 6.3%. In the last year, it has risen 8.5%.

With that, its shares now trade on 15.3 times earnings. That’s by no means a bargain. The FTSE 250 average is around 12. However, I still think that’s good value for money for a business like ITV.

A meaty yield

On top of that, there’s a 6.3% yield at play. That’s nearly double the FTSE 250 average of 3.2%. There are higher yields out there on the index. For example, Ithaca Energy pays an incredible 16.4%. However, I like ITV as an income stock for a few reasons.

Firstly, its payout is covered 1.7 times by earnings. That’s just below the benchmark of 2 but it’s still a healthy cover. That’s important as dividends are never guaranteed.

Management clearly has the aim of boosting shareholder returns in the years to come, which I love to see. It paid a dividend of 5p per share last year, the same as in 2022. However, the board has outlined its intention to grow its payout over the medium term.

What’s more, alongside its sale of BritBox it announced a £235m share buyback scheme with the proceeds. On 4 June the firm released an update saying it had bought back a further 792,616 shares, taking its total amount of repurchased shares to over 54m.

A dying industry?

The combination of value and income makes ITV an attractive investment proposition. Nevertheless, I do see one major risk.

Its share price has underachieved over five years and there’s a good reason for that. The traditional advertising market, which is one of ITV’s main sources of income, has weakened.

Factors such as racing inflation, as well as the rise of streaming providers such as Netflix, has dragged on the industry and seen customers cut back on spending. Navigating this will continue to be a challenge for the broadcaster moving forward.

A bargain?

I think ITV shares are good value for money. And given the direction its share price has been trending in recently, it seems like investors also agree. The business is moving its attention away from traditional advertising to more modern streaming services, and it seems to be paying off.

Even with its rise, I still think it looks like great value at today’s price. My plan is to slowly increase my position in the FTSE 250 constituent over the coming months with any investable cash I have.

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.

Charlie Keough 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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