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At 68p, the ITV share price is far too low. Here’s why!

Middle-aged white man wearing glasses, staring into space over the top of his laptop in a coffee shop
Middle-aged white man wearing glasses, staring into space over the top of his laptop in a coffee shop

One FTSE 250 share I have high hopes for is ITV (LSE: ITV). However, the ITV share price has had a rotten 2022, crashing hard since February. Even so, this stock could well be one of my star buys for long-term returns.

The ITV share price plunges

It’s been a rough and rocky road for the ITV share price this year. At their 52-week high almost a year ago, the shares briefly hit 127.19p on 12 November 2021. Since then, they’ve collapsed, plunging to a 52-week low of 53.97p on 29 September. How I’d have loved to have bought stock at such a low price.

Here’s how this popular share has performed over seven different timescales:

One day

-0.6%

Five days

2.1%

One month

16.8%

Six months

-3.8%

2022 YTD

-38.1%

One year

-38.9%

Five years

-56.4%

Over the past 12 months, the ITV share price has plummeted by almost two-fifths, while it has plunged by more than half over the last half-decade. These returns exclude cash dividends, which would have lifted returns by several percentage points each year.

We own ITV shares

In late June, my wife bought a modest stake in ITV at an all-in price (including stamp duty and buying commission) of 68.4p a share. Amusingly, that’s almost exactly where the ITV share price closed at on Friday, 4 November. What a coincidence.

As I said, I’m gutted that I missed the opportunity to buy ITV when its share price nosedived below 54p five weeks ago. Since then, the shares have surged by more than a quarter, leaping in value by 26.7%. Never mind.

Is ITV a fallen angel or a falling knife?

One old stock-market saying warns: “Never catch a falling knife.” In other words, don’t rush to buy shares just because they’ve plunged in value. My personal approach is to look for ‘fallen angels’ — quality companies whose share prices have been driven down to bargain-basement levels.

Also, my acid test for deciding whether I’d buy shares in any company is this: had I sufficient funds, would I buy the entire business? Right now, I’d be happy to buy ITV outright for its current market value of just over £2.7bn. For that low, low price, I would own the UK’s #1 terrestrial commercial broadcaster, as well as a leading content provider for media companies worldwide.

I see ITV as a hidden gem

Indeed, I wouldn’t sell our existing shares at anywhere near current prices. At the current share price, the stock trades on a miserly price-to-earnings ratio of 5.8, which works out to an earnings yield of 17.1%. This is around 2.4 times the earnings yield of the FTSE 100 (of which ITV was until recently a member).

Also, the dividend yield of 7.3% a year looks very attractive to me as an income-seeking investor. Even better, this cash yield is covered 2.3 times by earnings. To me, this suggests that the payment is both rock-solid and offers plenty of room for uplifts.

Of course, there are worries for the business about collapsing consumer confidence, rising interest rates and sky-high bills, plus threats to corporate-advertising budgets. But I still see ITV as offering an excellent risk/reward profile for the long term. Indeed, I may even buy more shares before 2022 is out!

The post At 68p, the ITV share price is far too low. Here’s why! appeared first on The Motley Fool UK.

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Cliffdarcy has an economic interest in ITV shares. 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.

Motley Fool UK 2022