HomeMost Popular The Irresistible Allure of Meta Platforms' Stock: A Must-Buy for Investors

The Irresistible Allure of Meta Platforms’ Stock: A Must-Buy for Investors

Actionable Trade Ideas

always free

When considering an investment opportunity, compiling a list of reasons to support your decision is akin to creating a roadmap for success. It not only serves as a reference point for future evaluations but also aids in structuring your analysis, providing key indicators to monitor in quarterly reports. While the rationale to invest or hold a stock may shift over time, maintaining an updated list is a prudent strategy.

1. Anchored in a Robust Core Business

Meta Platformsโ€™ core business in social media stands firm, with a dominant presence through platforms like Facebook, Instagram, WhatsApp, Threads, and Messenger. Despite varying user experiences, the number of daily active users across Metaโ€™s properties surged to a record 3.19 billion in Q4. This impressive figure represents nearly half of the global population, underscoring the unparalleled reach of Meta Platforms.

Given the extensive proliferation of Metaโ€™s products, the prospect of the company facing significant adversities seems remote. Its broad diversification and massive user base position it as a behemoth whose hypothetical collapse could reverberate on a global scale. Hence, the longevity of Meta Platforms appears secure, accompanied by a relatively low likelihood of downside risks.

2. Resurgence in Growth Trajectory

Aside from the expanding user base, Meta Platforms is experiencing a resurgence in both sales and profits. Following a dip in the advertising market in late 2022 and early 2023, a remarkable recovery ensued. Given that a substantial portion of Metaโ€™s revenue is derived from advertisements on its various platforms, this revival is pivotal.

In Q4, Metaโ€™s advertising revenue soared to $38.7 billion, marking a robust 24% year-over-year increase. Notably, this surge was not confined to a specific region but rather manifested as widespread revenue growth across all markets.

Region Q4 Revenue YOY Revenue Growth
U.S. & Canada $17.78 billion 19%
Europe $9.16 billion 33%
Asia-Pacific $7.32 billion 23%
Rest of world $4.45 billion 32%

Data source: Meta Platforms. Table by author, YOY=year over year.

Following a year where profitability was suboptimal due to declining ad sales, Meta Platforms rebounded strongly, achieving its best operating margin since 2021. This upsurge was primarily fueled by escalating revenue and stable expenses, indicating Metaโ€™s prowess as an enterprise. Moreover, with Wall Street analysts forecasting a 17% growth trajectory for 2024, the sustainability of Metaโ€™s growth appears promising.

3. Moderate Valuation of Metaโ€™s Stock

Amidst the prevailing market scenario characterized by exorbitant valuations, Meta Platforms remains reasonably priced. Trading at 24 times forward earnings, the stockโ€™s valuation strikes a balance between affordability and inherent value.

Resilient to the 2022 downturn, when Metaโ€™s excessive expenditures on its Reality Labs division amidst a subdued ad market caused a profit slump, the company has consistently maintained a trailing price-to-earnings (P/E) ratio in the upper 20s.

META PE Ratio (Forward) Chart

META PE Ratio (Forward) data by YCharts

If Meta meets Wall Streetโ€™s earnings expectations over the next year, the stock would be undervalued relative to historical metrics. This favorable positioning further bolsters the case for investing in Meta Platforms.

4. AI-Powered Upside Potential

Lastly, the focus shifts to Meta Platformsโ€™ Reality Labs division, housing its metaverse, virtual reality, and augmented reality endeavors. Although some applications of these technologies may seem gimmicky, the fusion with generative AI could yield indispensable products.

For instance, Metaโ€™s development of Ego AI, an instructional AI for activities like tennis, cooking, or painting, holds significant transformative potential. When integrated with augmented reality glasses, this technology could revolutionize skill acquisition processes. Although the commercialization of such products may be distant, upon their introduction, they are poised to revolutionize their respective domains.

Given that Metaโ€™s stock valuation predominantly hinges on its advertising realm, any innovations in AI technologies will serve as a value-added proposition. Collectively, these facets affirm the compelling case for Meta Platforms as a prime stock investment.

Should you invest $1,000 in Meta Platforms right now?

Prior to engaging in Meta Platformsโ€™ stock, it is prudent to consider the following:

The Motley Fool Stock Advisor analyst team recently identified what they deem as the 10 best stocks for prospective investors, with Meta Platforms omitted from this list. The recommended stocks are poised to deliver substantial returns in the foreseeable future.

Stock Advisor equips investors with a clear roadmap for success, offering insights on portfolio construction, regular analyst updates, and bi-monthly stock recommendations. Since 2002, the Stock Advisor service has outperformed the S&P 500โ€™s returns by a significant margin*.

Explore the 10 recommended stocks

*Stock Advisor returns as of April 1, 2024

Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, serves on The Motley Foolโ€™s board of directors. Keithen Drury holds positions in Meta Platforms. The Motley Fool holds positions in and recommends Meta Platforms. The Motley Fool abides by a disclosure policy.

The opinions expressed in this article are those of the author and do not necessarily reflect the views of Nasdaq, Inc.

Swing Trading Ideas and Market Commentary

Need some new swing ideas? Get free weekly swing ideas and market commentary from Jonathan Bernstein here: Swing Trading.

Explore More

Weekly In-Depth Market Analysis and Actionable Trade Ideas

Get institutional-level analysis and trade ideas to take your trading to the next level, sign up for free and become apart of the community.