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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.
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%.
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.
