ITV plc (LON:ITV) Looks Inexpensive But Perhaps Not Attractive Enough

When close to half the companies in the United Kingdom have price-to-earnings ratios (or "P/E's") above 17x, you may consider ITV plc (LON:ITV) as a highly attractive investment with its 6.7x P/E ratio. However, the P/E might be quite low for a reason and it requires further investigation to determine if it's justified.

Recent times have been advantageous for ITV as its earnings have been rising faster than most other companies. It might be that many expect the strong earnings performance to degrade substantially, which has repressed the P/E. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.

Check out our latest analysis for ITV

If you'd like to see what analysts are forecasting going forward, you should check out our free report on ITV.

Is There Any Growth For ITV?

There's an inherent assumption that a company should far underperform the market for P/E ratios like ITV's to be considered reasonable.

If we review the last year of earnings growth, the company posted a terrific increase of 57%. As a result, it also grew EPS by 23% in total over the last three years. Therefore, it's fair to say the earnings growth recently has been respectable for the company.

Turning to the outlook, the next three years should bring diminished returns, with earnings decreasing 7.8% per annum as estimated by the eight analysts watching the company. With the market predicted to deliver 14% growth each year, that's a disappointing outcome.

With this information, we are not surprised that ITV is trading at a P/E lower than the market. Nonetheless, there's no guarantee the P/E has reached a floor yet with earnings going in reverse. Even just maintaining these prices could be difficult to achieve as the weak outlook is weighing down the shares.

The Final Word

Typically, we'd caution against reading too much into price-to-earnings ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

We've established that ITV maintains its low P/E on the weakness of its forecast for sliding earnings, as expected. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

There are also other vital risk factors to consider and we've discovered 3 warning signs for ITV (1 is potentially serious!) that you should be aware of before investing here.

Of course, you might find a fantastic investment by looking at a few good candidates. So take a peek at this free list of companies with a strong growth track record, trading on a low P/E.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.