They say a lot can happen in a week, and “they” aren’t wrong.

Last week, the FTSE 100 closed at 7,498 on Wednesday — but by the end of Thursday, it had dropped 3.88% to 7,207.

In just 48 hours, “a lot” happened. 

Share prices tanked. Investors sold positions they previously held in stocks they clearly bought because they saw value in them.

But then share prices recovered. By Friday’s market close, the index had rebounded back up to 7,489.

Of course, the stock market correction was spurred by the heinous invasion of Ukraine on Putin’s orders.

Taking nothing away from the gravity of that atrocity from a human perspective, if we bring our inward gaze back to the Footsie, what happened over those two days?

Well, arguably — at least on paper — some investors who panicked then lost money that they wouldn’t have, had they held on for a matter of hours.

While the markets have been a little choppy this week, for the first three days the UK’s leading index barely moved at all, in relative terms.

Yesterday, it dropped to 7,238 at market close, while as I write this on Friday morning, the FTSE 100 has again fallen a little over 3% from yesterday’s closing price.

So what should Fools do with their investments? Take the money and run?

No. The best course of action is to do nothing. 

Last week’s dip and subsequent recovery is a microcosm of what we’ve seen happen in the stock market historically.

In recent years, of course, early-2020’s stock market crash saw the Footsie’s losses recovered within two years.

2007 saw the start of the most serious financial crisis since the Great Depression. The FTSE 100 began that year at around 6,200. 10 years later, the index topped 7,000.

This is why The Motley Fool always advocates for long-term, buy-and-hold investing.

Buy and hold. Three words, all equally important:

• buy shares in quality companies when thorough research suggests there should be a good runway ahead towards growth.
• hold through good times and bad. Let’s not forget that Warren Buffett said “Our favourite holding period is forever.”
• last but not least, and — when share prices in quality companies are beaten down, not only should you avoid selling your existing stocks but you should also strongly consider adding to your portfolio! Buffett again: “Be greedy when others are fearful.”

Buying opportunities like we’re seeing with these miniature stock-market sell-offs don’t come around too frequently.

They can present a good occasion to buy shares in fantastic companies that you’ve had your eye on for a while, or even to ‘top up’ positions in your favourite investments within your portfolio.

Just make sure you have in-depth research on your side before committing to any purchase.

Remember — you’re seeking ‘best in class’ businesses for the long term to help your money work harder for you!

Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Just today, stock markets around the world were further rocked by the news that Russian forces had attacked and gained control of the Zaporizhzhia nuclear power plant. This is Europe’s largest nuclear power plant. The terrible news has followed a week of distressing reports from Ukraine and steadily declining share prices. This time last week, however, many companies had rebounded, like Ferrexpo, the iron ore miner operating in Ukraine.

That’s why I’m looking at recent market volatility as a stock market correction, not a stock market crash. In the past, I’ve tried to learn how best to respond to these types of situations. Here are two of the best lessons I’ve learned. Let’s take a closer look.

Why I’m not panicking during this stock market correction

None of my holdings have been immune from the recent market volatility. However, two stand out as having suffered the most. The first is Polymetal International, a gold mining firm based in Russia. For obvious reasons, like the threat of sanctions, the share price has fallen off a cliff. In the past week, it is down 71%. In the past year, it is down 86%. But as I write, it is trading around 220p, up 25% on the day.

Similarly Ashmore, an emerging markets asset manager, is down 10% in the past week and 48% for the year. While it is currently trading around 224p, it has suffered as a result of investors retreating to ‘safer’ havens. Of course, it is possible that conditions could deteriorate and drag share prices down further.

It’s at times like these when I think back to the reasons I bought these companies in the first place. Polymetal’s earnings-per-share (EPS) has grown from ¢88 to ¢191 over the 2017 to 2021 calendar years, a compound annual EPS growth rate of 16.7%. In addition, Ashmore’s revenue has steadily increased from £257m to £292m between 2017 and 2021, for the year ended 30 June. Its compound annual EPS growth rate is 7.7%. By reminding myself of the rationale for my investment decisions, I’m better psychologically prepared to weather the temporary storm.

Why I’m buying, not selling

I’ve also learned that it’s useful to have part of my portfolio in cash. This way, any downturn in the market provides a buying opportunity. Because fear and panic are driving this stock market correction, shares tend to become oversold. The same may apply in rising markets, when greed takes over and shares become overbought. Buying while most others are selling may be considered a contrarian approach, because this is going against the prevailing investor sentiment.

I’m looking to top up two of my existing holdings, Rolls-Royce and Cineworld. In the past week, they have fallen 16.5% and 6.8%, respectively. For the past year, they are down 10% and 66%. Yet, I consider these to be quality companies. Cineworld is enjoying improving results as more people return to the cinema after the pandemic. For December 2021, group box office revenue was 88% of that in the same period of 2019. Rolls-Royce is building a sustainable business, exploring electric aircraft and sustainable aviation fuel.

I’m not letting fear take hold of my investing. While it is sometimes disconcerting to see heavy losses on the screen, I stick to my long-term principles. I will be buying more shares in Rolls-Royce and Cineworld today. I won’t be selling a single thing.  

Andrew Woods owns Ashmore, Cineworld, Polymetal International, and Rolls-Royce. The Motley Fool UK has no position in any of the shares mentioned. 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.

Setting up passive income streams can be a way to increase my earnings over time without working more. One of the ways I do that is by investing in dividend shares. If I put £10 a day aside for this, I think I could start generating unearned money in the space of a few months. Here is the passive income plan I would use to go about it.

Get into the habit

Saving is habit forming, which is why I would make sure I set aside £10 each and every day – starting today. 

I could do that by setting up an automatic transfer, or using a good old-fashioned piggy bank. However I decide to save, I see value in getting into the habit. One of the attractions of passive income is that I can start earning it even if I do not have much money – but to do that, the more I save the more successful I am likely to be. So saving £10 a day when I am flush with cash, but also when I am more hard up, could help me lay the foundations for my passive income streams in a disciplined way.

Decide on my objectives

I would also think about what I want to achieve. The answer may be obvious — income! But in fact, there are different approaches to income.

For example, I could invest in a company that tries to hit a certain dividend level it has declared in advance, like Persimmon. I could go for a share that aims to pay out regularly each quarter, like Unilever. Or I could choose one that tends to pay out quarterly but with larger dividends in two quarters than in others, such as Imperial Brands. I could also choose a company that often distributes spare cash in the form of a special dividend, such as Games Workshop. So, I would need to decide what level of income I am looking for. And does it matter to me when in the year I receive it?

Dividends are never guaranteed, and even well-run companies can run into hard times that lead to a cut. So I would try to reduce my risk by diversifying my portfolio across different shares and business sectors. £10 a day is over £3,600 a year I could invest, so I should certainly be able to spread my investments in this way. But as well as diversification, I would decide what level of risk I was willing to accept in my investment. Higher-yielding shares sometimes involve elevated risks. That is basically why they offer bigger rewards to investors. But, as with any company, such dividends can dry up at any time.

Starting to invest

My £10 a day would soon start piling up. So I would get ready to invest, first by opening a share-dealing account such as a Stocks and Shares ISA.

I would also take time to research shares I felt might be a good fit for my investment objectives and risk tolerance. Like Warren Buffett, I would stick to my circle of competence by focusing on companies in industries I felt I understood. That could help me find the sorts of companies that are the right fit for my own passive income plan.

Christopher Ruane owns shares in Imperial Brands and Unilever. The Motley Fool UK has recommended Games Workshop, Imperial Brands, and Unilever. 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.

Share prices remain in freefall today as the conflict in Ukraine escalates. The FTSE 100, for instance, is down around 3% as I type, and within a whisker of falling below the critical 7,000-point marker. From the biggest British companies to the smallest penny stocks, the carnage is affecting the vast majority of UK shares.

It seems like share markets are going to hell in a handcart and so it’s tempting to sell up and cut losses. This isn’t a strategy I’m willing to actually take though.

In times of panic it’s worth taking a step back and remembering that sensible investing is a long-term endeavour. If I sell today, I’ll have made a whopping loss on some of my stocks. By holding on I have a chance to watch them eventually recover in price.

The threats to share prices today

No-one knows how the unfolding tragedy in Ukraine will end. A variety of scenarios – from an immediate ceasefire and a drawn-out conflict as we saw in Chechnya, to (dare I say it) a large-scale war in Europe — are all on the table right now. Each will have a significant consequence on the macroeconomic and geopolitical landscape and, by extension, on stock markets.

It’s a daunting notion and one that throws up a whole heap of challenges for investors like me. However, I personally take comfort in the proven long-term resilience of stock markets. This is why I won’t sell my stocks simply based on how share prices are moving today. I’ll take that step back and look at how stock markets have behaved before, during and after previous crises.

Thinking about the Footsie

Looking at the performance of the FTSE 100 in recent decades is a good way to do this. During the past 30 years, Britain’s premier share index has risen 174% in value.

In that time it’s risen despite wars in the Middle East, a banking crisis, a sovereign debt crisis in Europe, Brexit and, more recently, a global pandemic. And many investors have made some terrific, life-changing returns in that time.

Looking at the bigger picture

The discomfort I may be feeling as an investor takes a back seat to the horrors I feel as I watch events in Ukraine. But as a finance writer with an investment content business, I have to think analytically as share prices slump today.

Watching the value of investments slumping is uncomfortable. But at times like these I remind myself that unless I sell my stocks, I haven’t actually made a loss. As I said, I’ll hold onto my shares in the hope of riding an eventual rebound and watching my portfolio soar in value again.

In fact I think times of market volatility like this provide me as an investor with an opportunity to buy some bargains. There are plenty of top companies trading very cheaply following the fresh share price falls of today.

And with a little help from experts like The Motley Fool I have a good chance of digging these out.

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.

Key points

• Compound annual EPS growth between the 2017 and 2020 calendar years was 16.7%
• It has a lower forward P/E ratio than a major competitor
• Fears remain about how the escalating military situation in Ukraine may impact the firm

As the situation in Ukraine has deteriorated and turned into a full-blown tragedy, the stock market has fallen. Many companies with Russian links have been hit especially hard. One such example is Polymetal International  (LSE: POLY). This is a gold mining business operating in Russia. The fear of sanctions and general market sentiment have caused the share price to fall 72% in the past week. It is down 86% in the past year and currently trades around 220p. Looking at the underlying results, however, I’m wondering if this company’s fall has made it cheap to buy. Should I add more shares to my existing holding? Let’s take a closer look. 

Strong results underpin the Polymetal share price

For the 2021 calendar year, the firm stated that revenue had increased 1% year on year. However, net debt had increased to $1.6bn from $1.3bn the previous year. Furthermore, it will soon leave the FTSE 100.

Over a longer period, the business registers strong earnings growth. Between the 2017 and 2021 calendar years, earnings-per-share (EPS) increased from ¢88 to ¢191. By my calculations, this results in a compound annual EPS growth rate of 16.7%. As a current shareholder, I view this as strong and consistent.

Is it cheap?

By using the price-to-earnings (P/E) ratio, I am better able to understand if the Polymetal share price is cheap or not. Currently, it has a forward P/E ratio of 7.25, based on forecast earnings. Major competitor Petropavlovsk has a forward P/E ratio of 41.49. This may indicate that Polymetal is undervalued at current levels. It should be noted, however, that the recent sell-off of both these companies may detract from the precision and usefulness of the P/E ratio.  

Fears are also growing that firms like Polymetal may face sanctions from Western governments. In this scenario, it may be difficult for the company to conduct simple business. For example, it may have trouble selling the gold it produces. Alternatively, a ceasefire may be declared and military action may end soon thereafter. Not only would this be welcome news for people in Ukraine, Russia and the rest of the world, it may also be good for the Polymetal share price.

Furthermore, the company is working to enhance its long-term production capabilities. For instance, it recently approved an almost-$0.5bn investment in its Veduga project in Southern Russia. This is estimated to yield 200,000 ounces of gold for 21 years. I see this as a very positive move.

Although the Polymetal share price has recently fallen after a massive sell-off, I remain optimistic in the long term. It is a business with consistently strong results. While I won’t be purchasing more shares today, I won’t rule this out in the near future.

Andrew Woods owns Polymetal International. The Motley Fool UK has no position in any of the shares mentioned. 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.

Taking a long-term view as an investor, a dividend portfolio could hopefully allow me to build passive income streams for the years ahead. It is possible to build a dividend portfolio even from a standing start. Here is how I would do it.

Focus on long-term dividend potential

Rather than looking at what shares pay out at present, in building a dividend portfolio I would focus on whether I felt a company would be able to pay a sustainable dividend consistently in the years to come.

To pay dividends consistently, companies need to make a profit. But a profit is an accounting term, so perhaps surprisingly it does not always mean that a company actually has cash coming in the door. For that, I would look at a company’s free cash flow. If a company is profitable and has free cash flow, it should be able to support a dividend over the long term – if it decides to.

I could find this information by looking at companies’ annual reports, which are usually available free online.

Finding companies that could pay big  dividends

In choosing stocks for my dividend portfolio, I would not just look at firms with high payouts. For example, miner Rio Tinto yields 9.6%, but I do not hold it in my portfolio partly because I see a risk that the next downturn in commodities pricing could lead to a dividend cut.

I would instead be looking for a company with some distinctive commercial advantage that might allow it to sustain or increase its dividend in coming years. That could be the unique products associated with baker Greggs, the critical infrastructure owned by electricity distributor National Grid, or the powerful brand portfolio owned by consumer goods giant Unilever.

Value and price

But even though I think such companies have the sorts of business models that could support future dividends, that on its own is not enough for me to consider buying them. I also need to look at what value they offer at their current share price.

If many other investors feel positive about a company, that could mean the share price is high. So I might not think they offer compelling value to me. For example, animal nutrition maker Dechra Pharmaceuticals is in a niche market that can support high profit margins. But its shares trade at 60 times earnings and yield only 1%. At the right share price, I could see value in Dechra for my portfolio. But for now they look too expensive to me.

Building a diverse dividend portfolio

But no matter how good any one share may seem to me, its income potential could change fast if it runs into unforeseen problems. In 2020 a lot of blue-chip FTSE 100 shares cut their dividends at short notice and some have not yet come back.

So I would hunt for shares I could buy across a variety of companies and business fields. That diversification should reduce the overall risk to my passive income streams if any one share choice in my dividend portfolio disappoints.

Christopher Ruane owns shares in Unilever. The Motley Fool UK has recommended Unilever. 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.

easyJet  (LSE: EZJ) shares struggled yesterday, sinking over 7% by the time markets closed. What’s more, over the past year, the airline stock is down a whopping 40%. The travel industry was decimated by the pandemic, with flights grinding to a near halt for a good chunk of 2020.

That being said, more and more countries are lifting their covid-19 travel restrictions as the world returns to normality. This should help easyJet shares rise throughout 2022. Is now the right time for me to buy some cheap shares? Or should I pass up on the UK airline giant? Let’s take a look.  

Trading updates

The firm’s latest results showed that for the three months to 31 December 2021, revenues rose to £805m, up from just £165m for the same period in 2020. This was to be expected, but it does highlight the large-scale recovery the firm has seen since the worst parts of the pandemic.

easyJet is appealing to customers who are looking for cheap budget holidays. And the airline has announced it will be releasing a number of such holidays in an effort to drive up occupancy of its planes. This should help drive up revenues in the near future and should prove popular as we approach the summer holiday season.

A final positive for easyJet shares is the global outlook for passenger traffic. As my fellow Fool Charlie Keough mentioned, global passenger volume is expected to reach 3.4bn in 2022. This is almost double the passenger numbers seen in 2020, which is great news for easyJet. With it offering cheap deals, it could set itself aside from the competition, capitalising on these large numbers.

Headwinds for easyJet shares

While there are certainly positives for the firm, there are also some big risks ahead of it. Firstly, the dreadful events linked to the Russia-Ukraine war have led to disruption and international travel uncertainty. In addition to this, the price of oil has skyrocketed to well over $100 a barrel. This will filter down into easyJet’s fuel costs, reducing margins and placing pressure on revenues. I struggle to see how the shares will climb in this uncertain landscape.

In order to mitigate this risk, easyJet has announced that it has 60% hedged fuel for the current financial year, ending 30 September 2022. While this gives me some confidence, rising fuel costs are still a big worry in my opinion.

What I’m doing now

While the current share price drop does offer me a chance to grab some cheap shares, I think the risks outweigh the positives for the firm. It has experienced encouraging results and is set to benefit from increased footfall. However, I can’t help but worry about rising fuel costs and international travel issues. In my eyes, easyJet shares will struggle to overcome these risks in the near future. As such, I won’t be adding the shares to my portfolio today.

Dylan Hood has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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.

The ASOS (LSE: ASC) share price used to be a market darling. From its IPO in October 2001 to its all-time high in March 2018, the stock returned more than 31,000%. No, that is not a typo. 

Unfortunately, the company has since fallen from grace. The stock is off around 80% from its all-time high. Over the past year, shares in the online fashion giant have fallen 71%. 

Shares in the corporation have come under pressure as it has faced numerous challenges. Even though revenue has increased by a double-digit percentage over the past year, a number of operational issues have hit profits. For the quarter ending August 2021, the company’s revenues increased 16% year-on-year, but net income declined 50%.

It looks to me as if investors are concentrating on the stock’s negatives, rather than focusing on its positives. That could be a mistake. 

ASOS share price outlook

Since its founding, ASOS has redefined the online fashion market, and the business is not going anywhere anytime soon. Neither is the wider online fashion market. In fact, I think the market is only going to expand over the next couple of years. As one of the largest retailers in the space, the enterprise should benefit from this growth. 

That said, the business will only benefit from this growth if it gets its house in order. Over the past couple of years, ASOS has had to deal with a range of operational issues, and profits have suffered. It needs to prove to the market that these issues are behind the enterprise. Management also needs to prove that the company has what it takes to compete effectively in the highly competitive online fashion market. 

Another factor I think has contributed to the recent performance of the ASOS share price is the company’s valuation. The stock has always commanded a high earnings multiple.

Overpriced? 

Its five-year average price-to-earnings (P/E) multiple is around 50. This did not leave much room for disappointment. As the company’s growth has disappointed, the market has re-rated the business down to a lower earnings multiple.

At the time of writing, the stock is trading at a forward P/E of 18.6. That is still a bit on the high side for a firm that analysts expect to report a 31% decline in earnings this year. 

So, overall, I think it is likely that the ASOS share price will continue to languish as the company works through its issues. The organisation does have tremendous potential as it rides the growth of the e-commerce market over the next decade or so.

However, it needs to prove to the market and investors that it can grow sustainably without incurring high costs from organisational disruption. In the meantime, investors may continue to bulk at paying a high multiple for a company that is struggling to grow.

Rupert Hargreaves has no position in any of the shares mentioned. The Motley Fool UK has recommended ASOS. 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.

The Darktrace share price has suffered for a few months now, but a very good trading update yesterday prompted a sharp rise in the shares. There are reasons to think the cybersecurity group’s share price could kick on from here and potentially reward investors with huge growth.

Why was the Darktrace share price falling before?

First of all though before explaining why huge share price growth could come, it’s worth looking at why the shares have been falling. One is beyond the control of management. That is technology stocks and loss-making companies have been out of favour with investors in recent months as valuations became stretched. Not much Darktrace could do about that.

Another is that backers from its float on the UK stock market sold shares – that’s also quite hard for management to stop. It does create a lot of supply of the shares, though, driving down the price.

The other negative is perhaps more concerning and is something any investor should keep in mind if looking at Darktrace. The shares plummeted in October 2021 after a very critical analyst note. The analysts from Peel Hunt said, among other things, that the group was overvalued, had low barriers to entry, underinvested in research and development (R&D), and that some experts thought the products to be gimmicky.

That’s quite a collection of criticisms and hard to independently verify, although the group spent £15.5m on R&D in the six months to the 21 December 2021, which seems significant. I’m letting the results speak for themselves instead. Also, Shadowfall has accused the group of being aggressively promotional. It clearly has its detractors. One might argue though that high profile market leaders often attract criticism.

Why the shares could keep on rising

While a lack of R&D spend for a technology company is a potential risk as the cybersecurity landscape evolves – it’s clear from the trading update that Darktrace is doing well. Having worked briefly in the industry I know it has a strong brand and a lot of customers.

The results showed that customer numbers grew, while annualised recurring revenue (ARR) rose 45.5% to $427m. It also now expects year-on-year revenue growth of between 44.5% and 46.5%, up from 42%-44%.

The group also moved into a net profit position from a loss the previous year. It looks like the direction of travel is the right one when it comes to the group’s financials.

The group invests a lot on sales and marketing, which should help it in the competitive, high growth market is in. If it loses market share though and competitors do eventually create better products, that would hurt both the company’s finances and the Darktrace share price. So it is an investment that needs to be watched closely.

Overall it’s possible Darktrace shares are still overvalued and that it may lose out to competition over time, especially if it’s not investing sufficiently in R&D. Nonetheless, the move towards becoming profitable and the fact for months the shares have fallen heavily mean I think a recovery could be in the offing. I’m tempted to buy Darktrace shares. There could well be significant share price growth ahead if earnings per share grow. 

Andy Ross owns no share mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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.

ITV (LSE: ITV) shares dived after the corporation reported its full-year results for 2021 earlier this week. The stock fell around 30% on Thursday and has continued to fall on Friday, despite the company reporting relatively robust figures. 

A rebound in advertising revenue from the depths of the pandemic helped the company report a record £3.5bn in revenue. Meanwhile, pre-tax profits improved from £325m to £480m, and the board proposed a final dividend of 3.3p a share.

The payout for the whole year is 5p per share. Based on the current share price of 76p, that suggests the shares offer a yield of 6.6%. 

Investors spooked 

It seems investors were spooked into selling ITV shares by the firm’s plans to increase its spending on content production. ITV said it planned to invest £1.23bn in programmes this year, up from an initial figure of £1.16bn. It plans to spend a further £1.35bn next year. 

This is all part of the firm’s plan to at least double its digital revenues to £750m by 2026.

City analysts believe this spending shows the company is struggling to compete with American streaming giants. This has been a long-standing concern among investors. ITV is a fraction of the size of its American peers, and it has always been struggling to draw eyeballs away from these content providers. 

However, while this is a very real concern, I think it is notable that the business has managed to hold its own. The streaming attack is not a new phenomenon. The company has been fighting off its American competitors for much of the past decade. The fact that the corporation has just reported record revenues for 2021 suggests it is managing to navigate this challenge and still grow. 

ITV shares valuation 

With spending set to increase over the next year, City analysts have revised down their profit expectations for the company. They are now forecasting a net profit of around £600m for 2022, or earnings per share of 15.1. Based on this projection, the stock is trading at a forward price-to-earnings (P/E) multiple of 5.3. This has become one of those rare situations where the yield on a stock exceeds its valuation. 

Based on all of the above, I am still bullish on the outlook for ITV shares. Yes, the company is facing increasing competition and is having to spend more to keep consumers watching. But even after factoring this risk into account, and the increased spending required the keep on top of the competition, the stock looks dirt cheap. 

I think there are two potential outcomes for the enterprise over the next five years. In the worst-case scenario, it will lose market share to the streaming giants, revenues will collapse, and so will the value of the company’s shares.

On the other hand, if the firm continues to maintain its position in the market, it could become an attractive takeover target, although there is no guarantee a competitor will move in to buy the business. 

Rupert Hargreaves owns ITV. 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.