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For a while, ITV (LSE: ITV) appeared to be regaining favor with investors. In the first half of this year, stocks recovered sharply. But while ITV's share price is still 23% higher than at the start of the year, it has been losing steam of late and is now lower than it was in July.
I think this is a bit confusing. After all, there are a lot of things to like about the media company. But the company, already pennies on the side, appears to be going nowhere fast.
What could be happening?
Continuous problems, inconsistent delivery
To begin with, what could be the reason for ITV's weak share price performance?
Some investors consider this a business that has left its best days behind. Owning one of a limited number of national commercial television companies was once a license to print money. But the media landscape is now much more fragmented, as are audience tastes.
To combat that, ITV has been trying to strengthen its digital offering. It's done pretty well in that regard, but there are a couple of challenges. First, building the digital side of operations is expensive and reduces profits. Meanwhile, the economics of digital broadcasting are still not as attractive as selling advertising on terrestrial television used to be.
ITV's mixed performance in recent years has also not helped inspire confidence in the city. There's a reason the stock has fallen 40% in five years.
Potential Value Share Hiding in Plain Sight
Still, that price drop has had the benefit of increasing dividend yields even as the dividend per share remains stable. With a dividend yield of 6.5%, the FTSE 250 It could be a juicy passive income generator.
That depends on the company maintaining pay per share at its current level, something it has always said it intends to do at a minimum. However, that is not guaranteed.
I think the business also has considerable strengths. While an advertising crisis remains a risk, the broadcasting business remains a major source of income. Over time, I expect a greater focus on digital streaming will help the company grow its viewer base and potentially its revenue as well.
Additionally, ITV has its Studios business, which makes money by renting facilities and production expertise to a wide range of broadcasters.
The ITV seems cheap but has risks
Ultimately, I think ITV's share price looks cheap for a company of its quality. The market capitalization is £3bn and ITV trades on a price-to-earnings ratio of 10.
But the share price has been falling lately and clearly not all investors share my enthusiasm for the potential value on offer.
However, with those risks in mind, I see ITV as a stock that investors should consider buying at its current price.
