ITV (LSE:ITV) is currently trading as a penny stock. I believe this dirt-cheap share could hold great recovery potential so I added some to my holdings. Here’s why.
Media giant
ITV is a London-based media business and is one of the largest media companies in the UK. It holds 13 of the UK’s 15 regional TV licences. Some of its best known brands include ITV, ITV2, as well as its online streaming business, ITV Hub. It also owns ITV Studios, which produces and markets content for other British and US-based media houses.
A penny stock is one that trades for less than £1. So what’s the current state of play with the ITV share price? Well, as I write, the shares are trading for 72p. At this time last year, the shares were trading for 127p, which is a 43% decline over a 12-month period.
A penny stock with risks
As well as the stock market correction, I think ITV’s recent decision to refactor its streaming service pushed the shares downwards. The ITV Hub and BritBox offerings will amalgamate into what will be known as ITVX. It will be a free, ad-funded service along with an ad-free subscription. The shares fell by 30% when the announcement was made in March. There is a huge risk here, as this could be a costly and time-consuming project that may not yield an expected return.
ITV may be seen as a traditional broadcaster but it is attempting to keep up with the current technology available. The plethora of streaming and digital platforms available to consumers is a risk to its progress.
Why I added ITV shares to my holdings
ITV shares look good value for money to me on a price-to-earnings ratio of just seven currently. The FTSE 100 average is 15. Furthermore, I can’t recall a penny stock that offers a dividend yield of close to 5%, like ITV does. This should boost my passive income stream.
Let’s take a look at ITV’s performance then. The year ended 30 December 2021 was an underwhelming one as the pandemic had a material impact on viewership, content, and performance. The good news for ITV is that 2022 figures showed a strong recovery. This was partly boosted by reopening allowing creation of new content, coupled with some larger sporting events, which boosted viewership and ad revenue.
I note that ITV still holds close to 35% of UK commercial television viewership. Its track record, profile, and diverse offering should help it return to former glories in the longer term, in my opinion. This could also see its shares boosted upwards and leave penny stock territory.
ITV shares fit perfectly into my investing mantra of buy and hold for the long term. The shares are currently dirt-cheap, offer me a dividend to boost my passive income stream, and have a track record of success and a large profile to continue growth. I look at ITV as a penny stock with very little downside based on the price I paid for the shares.