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Here’s why I would buy the ITV share price right now

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There’s a lot to like about the FTSE 100’s ITV (LSE: ITV) right now. For example, the firm’s TV news programmes seem far less biased and spin-prone than the BBC’s! But joking aside, the fundamentals of the business seem to sit well with the valuation, and I think we could be looking at a decent buying opportunity.

The recent share price of 152p puts the forecast dividend yield for 2018 at a tempting-looking 5.3%. City analysts following the company expect earnings to ease back around 6% this year, and by a further 4% in 2019. But the weakness in earnings could be driving the opportunity in the valuation. The firm is valued at just over 10 times 2018’s projected earnings, which seems undemanding.

Ex-growth and down-valued

The share price is down more than 40% from the highs it achieved at the beginning of 2016. Growth in earnings first slowed, then stopped, and finally, annual earnings began to decline and the valuation reduced to mirror the reality with earnings. We were looking at a price-to-earnings ratio of around 17 when earnings were growing in double-digit percentages around 2013. Today, ITV is ex-growth, and the dividend has come into sharp focus. The firm kept on raising the dividend payment each year despite lacklustre progress with earnings, and the yield has swollen as the share price contracted.

In early November, the firm reported on the progress it had made in the first nine months of the year. Trading had been steady, if unspectacular, and the company expects a flat outcome from its overall advertising revenue for the full year, mentioning that an increasingly uncertain economic environment”  was blowing up some headwinds.

The uncertain outlook is one reason for the firm’s modest-looking valuation, I reckon. Well-known US investor Warren Buffett once said, “You pay a high price for a cheery consensus,” which implies that you want the outlook to be a little murky if you want to pay a lower price. And ITV’s lack of forecast growth in earnings qualifies as a murky outlook.

Potential for growth to reignite later

However, an absence of growth now doesn’t mean that growth is gone forever. The company said in the recent report it’s focusing on executing its strategy to create a “stronger, structurally sound business, building on our strong operating performance in the areas of the business which are under our control.” The investment and cost-saving programmes are “on track,” and we could see the benefits of such initiatives translate into enhanced earnings down the line.

ITV strikes me as a good candidate for a dividend-led investment. You could collect the dividend income and reinvest it back into the firm’s shares to compound your money. If growth sparks up later, share price appreciation could add to your gains. I think the company is well worth your further research time right now, while the shares appear to be out of favour.

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Kevin Godbold 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.