The Motley Fool

Should You Buy WPP PLC Instead Of ITV plc Or British Sky Broadcasting Group plc?

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2014 has been a disappointing year for investors in WPP (LSE: WPP). That’s because shares in the PR/advertising giant have fallen by 9% since the start of the year, which is well below the FTSE 100’s gain of just 1%. Furthermore, it doesn’t compare favourably to the gains posted by sector peers, Sky (LSE: BSY) and ITV (LSE: ITV), which have seen their share prices rise by 3% and 8% respectively over the same time period. However, does this now mean that WPP is the best value of the three and could, therefore, be a better buy than its key rivals?

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Strong Performance

Results released today show that WPP has experienced a strong first half of the year. Pre-tax profit is 15% higher than in the first half of 2013, while the company reported strong performance in many of its regions – including the UK. Furthermore, like-for-like sales growth for the first seven months of the year was an impressive 2.8%, although currency headwinds continue to hit the company’s figures. As expected, the dividend was raised by 10%, with WPP hitting its target 45% payout ratio a little sooner than expected.

Looking Ahead

Despite upbeat results, market sentiment towards WPP remains weak. For example, despite the upbeat results and outlook, shares are up less than 2% at the time of writing in a buoyant wider market. Indeed, now appears to be a good time to buy shares in WPP, with the company being forecast to increase its bottom line by 11% in 2015. This compares favourably to sector peer, Sky, which is expected to increase its profit by 5% and is on a par with ITV’s 11% forecast growth rate for 2015.

Valuation

However, where WPP’s share price fall has made a difference is in terms of valuation. It now trades on a price to earnings (P/E) of 15, which is lower than that of ITV (16.1) but still higher than Sky’s 13.8. When growth forecasts are combined with the P/E ratio, though, WPP scores well. Its price to earnings growth (PEG) ratio is just 1.2, which is slightly lower than that of ITV (1.3) and much lower than Sky’s 2.9.

Certainly, ITV and Sky have huge potential. For example, ITV is continuing to benefit from an upsurge in advertising revenues that are being aided by a resurgent UK economy. Furthermore, it has a sound strategy, a capable management team and appears to be relatively attractive at current price levels. Meanwhile, Sky’s acquisition spree could help to bolster its bottom line moving forward. Despite this, WPP appears to offer the most ‘bang for your buck’ in terms of the price paid for growth, meaning that while all three companies could be strong performers, WPP’s share price fall during 2014 seems to have made it the best buy right now.

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Peter Stephens owns shares of ITV. The Motley Fool UK has recommended British Sky Broadcasting. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.