It’s been a tough few days for investors in ITV (LSE:ITV). After changing hands in triple figures throughout 2021 and the first two months of 2022, the ITV share price dropped in March, taking it to penny stock levels. It saw a sharp decline to almost hit 70p per share on Monday. The FTSE 100 media stock has since regained some of these losses. However, its five-year performance is currently standing just shy of -60%.
Let’s explore whether the recent crash in the ITV share price represents a good buying opportunity for me.
Solid financial results
The plummeting ITV share price overshadows a strong set of full-year financial results for the UK’s second-largest broadcaster. ITV delivered total external revenue growth of 24% and adjusted earnings per share (EPS) growth of 40% in 2021. Advertising revenue of £1.96bn was a record high for the company and operating profits were up 46% to £519m.
The board proposed a final dividend of 3.3p per share, in line with previous guidance. Furthermore, ITV announced impressive cost savings and a reduction in the company’s net debt from £545m to £414m.
It’s notable that ITV’s leadership team decided to buy shares this week at under 80p per share, with a total value of just under £300,000. This gives me some confidence in the bullish case for ITV stock at its current price.
Investors spooked by streaming plans
Why did ITV’s share price crash though, making it one of the biggest FTSE 100 fallers in recent days? In short, the answer can be found in the company’s spending plans “to supercharge [its] streaming business”, in the words of Chief Executive, Carolyn McCall.
Investment in its digital-first content budget will exceed previous forecasts at £1.23bn for 2022, rising to £1.35bn in 2023. Much of this is due to the launch of ITVX, a subscription-based streaming platform, in Q4 2022.
There’s logic to this decision. Streaming viewing hours for its media and entertainment business were up by 22% on the year. Revenue for ITV Studios from streaming platforms climbed to 13% of the total for 2021 from 10% in 2020.
However, many analysts are sceptical of the firm’s ability to compete with US giants that have a big presence in the streaming sector, such as Netflix, Amazon, and Disney. Several streaming companies saw their share prices rally during the pandemic as they benefited from the ‘stay at home’ effect. It appears ITV wants to take advantage of this trend.
Whether demand for streaming will continue to rise as consumers revert to their pre-pandemic habits is a concern for investors as the broadcaster expands into a potentially saturated market. Bears will argue its spending plans are misfocussed and margins will be tight in the notoriously cash-intensive world of streaming.
Should I buy ITV shares now?
While I believe concerns about ITV’s future plans and stiff competition it faces have some merit, the stock looks oversold to me at present. The company currently trades at a modest P/E ratio of 8.7 and its recent financial results bode well for the future, I feel.
With popular shows in its portfolio, such as Love Island and I’m a Celebrity, ITV seems well placed to make ripples in the digital content sector. Other parts of the broadcaster’s business appear to be in a healthy shape. Accordingly, I see the current share price as a good long-term buying opportunity for me.
The post The ITV share price has crashed! Should I buy now? appeared first on The Motley Fool UK.
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Charlie Carman does not own any shares in the companies mentioned in this article. John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. The Motley Fool UK has recommended Amazon and 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.