This cheap FTSE 100 share isn’t the only penny stock I’d consider buying

For a variety of reasons, many UK stocks have seen their share prices hammered in 2022. Today, I’m looking at one FTSE 100 constituent that has become so disliked it now ‘boasts’ penny stock status.

Cheap FTSE 100 penny stock

Broadcaster ITV (LSE: ITV) has seen its market-cap tumble almost 30% year-to-date. Based purely on this, investors might suspect that trading has been awful. However, this simply isn’t the case. The £3.4bn-cap recently revealed a 48% jump in pre-tax profit and 24% rise in total external revenue growth of 24% in 2021. On top of this, the company kept its word and reinstated the dividend.

So what’s got investors flustered? It all seems down to the company’s plan to “supercharge” its streaming services and launch ITVX. As interesting a development as this is, it will require an awful lot of cash to get going. In addition to the cost, some investors are clearly sceptical of ITV’s ability to challenge established giants such as Netflix or Amazon. 

Valid concerns as these are, I believe the market is probably being too pessimistic. ITV still boasts an impressive list of popular productions. Debt is also coming down and a total dividend of 5.71p per share has been estimated for FY22. That’s a chunky yield of 6.81%, easily covered by profit. All this for a penny stock now trading at just six times earnings.

So as bad as the last few weeks have been, I’d be comfortable buying a slice of ITV today, just as I was before this month’s update. 

50% down! 

Another penny stock I’d consider is dotDigital (LSE: DOTD). It provides solutions to other businesses for automating their marketing campaigns across social media and email.

Despite the clear demand for what it does, holders have endured a torrid time of late. The shares have halved in value since the beginning of 2022. What’s brought on this capitulation?

Well, investors’ growing aversion to growth stocks in recent months can’t have helped. Nor can more recent news that full-year revenue growth will now be lower than expected “during the current and future financial years“.

Nonetheless, dotDigital looks like a fundamentally good business to me and possesses many of the qualities I look for. Margins are pretty high. Returns on capital — essentially, what a company gets back for the money it puts in — have been consistently decent too.

Recurring revenue also now stands at 94%, giving the company good visibility on trading. If CEO Milan Patel is right and the “dramatic acceleration” in the adoption of digital marketing is “set to endure,” DOTD might prove a great buy at these levels.

Risks to consider

Cautiously bullish though I am, there’s nothing to say things won’t get worse before they get better for either penny stock. The awful conflict in Eastern Europe may continue impacting general market sentiment, dragging the share prices of both companies lower.

dotDigital might be particularly at risk here. A forecast P/E of 23 still looks punchy considering the amount of competition it faces. ITV shares could also sink lower if, for example, advertising revenue dips again. 

However, the time to buy shares is when the expectations are (temporarily) low. I think that might be the case here. With a bit of patience, I reckon these penny stocks can still deliver.