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Here’s what I’d do with ITV’s 30% share price rise

Something’s up with the share price of FTSE 100 broadcaster ITV (LSE: ITV), which rose by over 13% from the start of last week. The rise is an even more impressive 30% when viewed from its low in August, since when it has pretty much been rising.

I think the key question here is – Can it sustain the rise? And perhaps even more importantly – Is it a good long-term investment?

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It’s how you look at it

A deeper look at the share price movement reveals some rather underwhelming trends. On average, it’s risen less than 2% since September, even if some of the stand-alone price changes are sharp enough to sit up and take notice. In fact, despite all the price increase in the recent days, ITV’s still trading at a much lower price than its peak of the past year.

Financials are a mixed picture

To assess if the share price has much steam, I looked at its financials as the first indicator of its overall health. The company’s seen rising revenues over the years and has also been profitable.

However, I am uncomfortable with its steadily falling revenues and profits over the past few quarters. Its latest result update, for the first half of 2019, showed a 5% decline in revenue from the last year and a 13% fall in earnings.

Its outlook isn’t entirely positive either. It points to “economic and political uncertainty” that will continue to impact advertising demand, which accounts for half of ITV’s revenues.

The International Monetary Fund has just cut forecasts for global economic growth in 2019 to 3%, the slowest since the crisis ridden period of 2008–09. With uncertainty still persisting on Brexit and what its effects will be, the UK is witnessing a double-whammy. In this context, ITV hardly inspires confidence.

Positives to note

So why did its share price start rising? One reason is that it’s seen as ripe for a takeover. While there’s no confirmed news, clearly this was reason enough for investors to buy into the stock. I’m unconvinced of the value in this reasoning to buy, however, because rumours of acquisition have been doing the rounds for at least one year now. Until we have concrete evidence of developments on this front, I don’t see this as a reason to invest in the share.

This is not to say that it’s a bad share by any stretch. It has a robust dividend yield of almost 6% and has the potential to offer capital appreciation when the uncertainties are behind us. Going into 2020, though, it remains a risky bet.

If anything, I think it will offer opportunities to buy on dips during the next year. In the meantime, I’d much rather focus on less glamorous but more dependable shares.

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Manika Premsingh 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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