The ITV share price: why is it underperforming the FTSE 100?

In the last year, the share price of ITV(LSE: ITV) has fallen by 8%, while the FTSE 100 has gained 3%. Clearly, it has therefore been a disappointing period for the company's investors, with a slowdown in advertising revenue growth and a change in CEO causing uncertainty to build.

Looking ahead, the company appears to have significant turnaround potential. Alongside a smaller company which reported positive results on Thursday, it could be worth buying for the long run.

Changing outlook

Since ITV is a cyclical stock, it is relatively sensitive to changes in the macroeconomic outlook for the UK. Following the EU referendum, consumer and business confidence have come under significant pressure. This has led to downgrades for the UK economy's growth rate, which suggests that companies that are reliant on the UK for their sales could experience a difficult period.

The company has also seen its CEO Adam Crozier depart. Having performed well in his role in recent years and having been a key part of transforming the company's operational and financial performance, it is perhaps understandable that investors are cautious about his replacement, Carolyn McCall. However, with a solid track record and plans for a new growth strategy, the market may be underestimating her potential impact over the medium term.

Investment potential

With ITV's share price having fallen in the last year, it now trades on a price-to-earnings (P/E) ratio of around 12. This suggests that it could offer a wide margin of safety. Of course, its forecast fall in earnings of 4% this year and lacklustre growth outlook of just 1% in 2019 indicate that the stock could take time to deliver improved performance.

However, with a 4.8% dividend yield that is covered 1.9 times by profit, the total return potential of the stock could be impressive. With a favourable interest rate environment set to remain in the UK and an updated strategy having the potential to catalyse its financial performance, further underperformance of the FTSE 100 may not be the norm for ITV over the medium term.

Growth potential

Also offering the potential to generate high total returns relative to the FTSE is marketing company for the gaming sector Veltyco(LSE: VLTY). It reported encouraging full-year results on Thursday which suggest that its current valuation may be too low.

The company delivered revenue growth of 165%, with sales rising from EUR6.1m in 2017 to EUR16.2m in 2018. This was boosted by acquisitions, with the company continuing to be active in the M&A space following the period end. And with its operating EBITDA (earnings before interest, tax, depreciation and amortisation) increasing by 260% to EUR8.1m during the year, it seems to be in a strong position to generate further growth in the long run.

Despite this, Veltyco trades on a price-to-earnings growth (PEG) ratio of 1.9 at the present time. Although it is a relatively small stock which is risky due in part to its ambitious growth plans, its return potential could be impressive. As such, for less risk-averse investors, it could be worth a closer look for the long run.

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Peter Stephens has no position in any of the shares mentioned. The Motley Fool UK has recommended 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.

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