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Meta Platforms' Current Multiples Make It A Value Stock, But Is It A Buy?

By Investing.com (Haris Anwar/Investing.com)Stock MarketsApr 07, 2022 09:31AM ET
www.investing.com/analysis/meta-platforms-current-multiples-make-it-a-value-stock-but-should-you-buy-it-200621688
Meta Platforms' Current Multiples Make It A Value Stock, But Is It A Buy?
By Investing.com (Haris Anwar/Investing.com)   |  Apr 07, 2022 09:31AM ET
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  • Some investors seeing a bargain in Meta after the company lost more than a third of its value
  • Current Meta valuation puts the company in the basket of value stocks for the first time.
  • The stock's reversal could prove short-lived, however

After a massive selloff this year, shares of Meta Platforms (NASDAQ:FB), Facebook's parent company, have started showing signs of life. The stock is up more than 12% during the past 30 days, outperforming other FAANG group tech giants such as Apple (NASDAQ:AAPL), Amazon (NASDAQ:AMZN), and Netflix (NASDAQ:NFLX).

Meta shares closed Wednesday at $223.30.

FB Weekly Chart
FB Weekly Chart

The turnaround comes after a bearish rout that erased about $500 billion in Meta’s market value since the stock’s peak in September of last year. The main catalyst for the selloff was a devastating earnings release in February, in which the company reported that its user base had stopped growing in the fourth quarter of 2021.

This sharp tumble, however, has made Meta’s valuation cheaper than many value stocks when considering price relative to profits. The Menlo Park, California-based company now sells for 18 times estimated earnings. By comparison, the average valuation in the NASDAQ 100 Index is around 26 times earnings. That’s never happened before in Meta’s tenure as a listed company.

Buy Signal?

For most analysts, the current setup is a signal to dive in and scoop up Meta shares. The communications services behemoth—which not only owns Facebook, the largest social media platform in the world but is also the parent company of Instagram and WhatsApp among other properties—has produced massive profits for many years and should continue to do so by running the world’s most populated social media sites.

In a note this week, UBS analyst Lloyd Walmsley raised his price target on Meta to $300 per share from $280, citing improvement in user engagement on Instagram Reels. The new price target is about 34% higher than where shares traded on Wednesday.

His note said:

“We believe Instagram Newsfeed changes and improving Reels content/algo can drive better engagement that we expect to monetize later in 2022 and in 2023. While the timing is unclear, we think a ramp in Reels monetization, easing comps, and improvements in targeting/measurement can drive the multiples back towards its 3-year average of a ~9% premium to the S&P 500.”

Walmsley’s positive outlook also appears in Investing.com’s survey of analysts. Most forecasters rate Meta as a buy with a consensus price target that implies a 44% upside potential.

FB Consensus Estimates
FB Consensus Estimates

Source: Investing.com

Similarly, according to several financial models like those that value companies based on P/E or P/S multiples or terminal values, the average fair value for Meta stock on InvestingPro stands at $366.45, implying more than 60% upside potential.

FB Fair Value Estimates
FB Fair Value Estimates

Source: InvestingPro

Despite these bullish forecasts, we caution investors that CEO Mark Zuckerberg and his team have a challenging road ahead in order to put the company back on a growth trajectory.

The most significant headwind the company currently faces comes from escalating challenges at its core business, including heightened competition, a hostile regulatory environment, and advertiser reluctance to spend big when the economy looks to be entering a tough patch.

In addition, there is a lack of visibility on Zuckerberg’s metaverse shift. We don’t know how long it will take for this massive undertaking to pay off. Meta’s Reality Labs, which is giving shape to the company’s metaverse ambitions, lost $10.2 billion in 2021. These challenges could continue to keep Meta stock depressed in the short run.

Still, Zuckerberg has an excellent track record of exceeding expectations and producing robust returns for his investors. Meta, in our view, is a bet for buy-and-hold investors who believe in the company’s new direction, which could pay off in the long run.

Meta Platforms' Current Multiples Make It A Value Stock, But Is It A Buy?
 

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Meta Platforms' Current Multiples Make It A Value Stock, But Is It A Buy?

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Comments (5)
Chris Long
Chris Long Apr 07, 2022 3:19PM ET
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While i wouldnt be out spreading an “all in buy” signal, i certainly wouldnt bet against Zuckerberg. Hes got the time and money to make FBs new direction work massively
Sam Iam
Sam Iam Apr 07, 2022 1:32PM ET
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One of the uglier charts I've seen. FB had that gigantic collapse in February. From 290 to 250. Trading today at 221.85. Could be toast for quite awhile.
Wankel YU
Wankel YU Apr 07, 2022 1:13PM ET
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is not Worth, everyone keep saying goodbye to FB
Alexis LEVY
Alexis LEVY Apr 07, 2022 1:09PM ET
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because of political biased and fake position meta are toast... there are no futur for this plateform
me ish
me ish Apr 07, 2022 1:08PM ET
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you'd be crazy to buy tech stocks right now. they are still way overpriced and do not take into account the FED's aggressive tightening, nor the slowdown in the global economy which is going to get far worse with out of control inflation. The last time the tech market was at the current prices, we didn't have such dreadful inflation figures, we didn't have the FED being so hawkish and we didn't have the war in Ukraine, nor the lock down of half of the Chinese economy - it's crazy to believe going forward that we're about to have a good earnings season - we're going to have a rapid slowdown and almost certainly a recession starting this year with significantly higher interest rates.
 
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