Meta Platforms Inc., formerly known as Facebook, made headlines recently with its impressive fourth-quarter results and the introduction of a dividend. This sparked discussions among investors about whether Meta could be considered a value stock.
So, what exactly is a value stock? Typically, it’s the stock of a stable, mature company that consistently performs well, pays dividends to shareholders, and trades at relatively low valuations compared to the broader market.
On the day Meta’s stock soared by 20% following the announcement of a 25% increase in revenue and a threefold jump in profit compared to the previous year, investors seemed to perceive a significant growth potential that wasn’t reflected in the stock price prior to the surge.
But does this mean Meta qualifies as a value stock? Let’s delve into the company’s future prospects and past performance to find out.
One way to gauge a stock’s value is by its forward price-to-earnings (P/E) ratio, which compares the current stock price to analysts’ earnings estimates for the next 12 months. Meta, often grouped among the “Magnificent Seven” alongside tech giants like Microsoft, Apple, Amazon, and others, boasts a forward P/E ratio that places it as the second-cheapest among the top 10 S&P 500 stocks.
Additionally, analysts’ estimates for Meta’s sales and earnings growth through 2025 suggest promising prospects, with expected compound annual growth rates (CAGR) outpacing many of its peers in the same category.
Reflecting on the Past:
Examining Meta’s past performance reveals steady growth over the past five years, with respectable figures for sales, earnings, and free cash flow (FCF) compounded annually.
Return on invested capital (ROIC) provides insights into how efficiently a company’s management utilizes invested funds. Meta’s average ROIC over five and ten years positions it favorably among its peers, indicating sound management and effective utilization of resources.
While Meta is commonly regarded as a growth stock, its recent performance and valuation metrics suggest it may also offer value to investors. With strong growth prospects, a solid track record, and relatively low valuation compared to its peers, Meta appears to be a hidden gem in the stock market landscape.
In conclusion, while Meta’s future may hold unpredictable twists and turns, its current standing as a growth-oriented yet undervalued stock presents an intriguing opportunity for investors seeking potential long-term gains in their portfolios.