Is this UK media group a cheap growth share or an ailing dividend payer?

Ken Hall has one UK growth share in his sights. Is it a bargain hiding in plain sight or do the risks justify the low valuation?

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I happily admit I’m not much of a growth share guy. Typically, my focus is on hunting in the UK stock market for consistent dividend payers in sectors that I like.

However, there is the occasional growth share or two that catches my eye. Given the volatility we’re seeing in the stock market at present, I thought I’d do a deep dive into one company that appears cheap compared to the FTSE 250 index. 

Prominent broadcaster

ITV (LSE: ITV) looks cheap to me at face value. The company is a major player in UK television programming and digital streaming services as it looks to adapt to the rapidly-evolving media landscape.

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While the media group has been on my radar for a while, what really caught my eye was its latest results. The success of ITVX, the company’s streaming platform, has helped provide a significant financial boost of late.

In fact, the company noted a 15% increase in digital advertising revenues between January and September 2024 as it continues to capture this growing part of the market.

Shares in the company have climbed 20.5% in the past year to £7.82 per share as I write on 30 January. Despite those gains, it still has a high dividend yield of 7% which is well above the FTSE 250 average of 3.4%.

Created with Highcharts 11.4.3ITV PriceZoom1M3M6MYTD1Y5Y10YALLwww.fool.co.uk

It’s a similar story with the price-to-earnings (P/E) ratio. ITV shares are trading at a multiple of 6.7 times earnings, while the mid-cap Footsie average is around 12.9. That looks like a bargain to me.

So, why are investors seemingly wary of the stock? There are a few key risks that might be looming on the horizon.

Key risks

First of all, digital streaming is a cutthroat industry. The need to be producing or acquiring relevant content for audiences with ever-changing tastes is a difficult one.

Similarly, while its ITVX business is growing, traditional broadcasting revenues are in decline. That puts pressure on the main business and potentially creates a bit of an ‘all the eggs in one basket’ situation.

Without the ITVX growth, there really isn’t a lot for investors to hold onto in terms of growth potential. Throw in the high cost of producing proprietary content, and the economic uncertainty facing the UK, which could impact on consumer spending, and ITV suddenly doesn’t seem like such a bargain.

Verdict

ITV is an interesting prospect. It is a household name with a long history as a major player in UK media. There are certainly some challenges facing the stock in the medium-term which does make it hard to value.

If the ITVX segment can continue to show signs of growth, then I think it could be a bargain at the current price. However, there is too much uncertainty over my 3- to 5-year investment horizon for me to be buying right now.

In the meantime, I’ll focus my efforts on more defensive sectors like pharmaceuticals to see if there are some bargains to be found.

But here’s another bargain investment that looks absurdly dirt-cheap:

Like buying £1 for 31p

This seems ridiculous, but we almost never see shares looking this cheap. Yet this Share Advisor pick has a price/book ratio of 0.31. In plain English, this means that investors effectively get in on a business that holds £1 of assets for every 31p they invest!

Of course, this is the stock market where money is always at risk — these valuations can change and there are no guarantees. But some risks are a LOT more interesting than others, and at The Motley Fool we believe this company is amongst them.

What’s more, it currently boasts a stellar dividend yield of around 10%, and right now it’s possible for investors to jump aboard at near-historic lows. Want to get the name for yourself?

See the full investment case

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.

Ken Hall 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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