A little bit greater than a yr ago, at the top of 2022, Meta Platforms (NASDAQ:META), one in every of the so-called Magnificent Seven stocks, was an absolute no-brainer to purchase, trading at just 12 times earnings. For the social media giant and one in every of the most important corporations on this planet, it was just too low cost to disregard.
Anyone who bought at that low valuation might be pretty blissful straight away after the stock returned 194% in 2023 and is up one other 40% year-to-date in 2024.
Investors who didn’t buy before the large surge might think it too late to get in now, but that is just not the case. Meta continues to be one in every of the most affordable Magnificent Seven stocks and has significant growth potential. Here’s why Meta is amongst the perfect undervalued growth stocks straight away.
Best value amongst Magnificent Seven stocks
Even after such an enormous run up over the past 15 months, Meta continues to be a superb value. It has a trailing 12 months price-to-earnings (P/E) ratio of 33, which is barely higher than the 31 P/E average for the Nasdaq 100. But its forward P/E, searching 12 months, is just 24.7, which is below the projected 28.7 forward P/E on the Nasdaq.
Looking even further out, Meta has a five-year P/E to growth (PEG) ratio of 1.1, which is often low for a growth stock. A PEG of 1 means the stock is fairly valued, with anything under 1 being undervalued and anything over 1 being overvalued. With a PEG ratio of 1.1, Meta is basically fairly valued relative to its future growth expectations, and it has the bottom PEG ratio of its Magnificent Seven peers.
The stock was trading lower this week on the news that Meta was a part of a federal probe into the sales of unregulated and illegal online pharmacies operating on its Facebook platform, in line with the Wall Street Journal, which broke the news on March 18. Meta was subpoenaed last yr as a part of the investigation and is fully cooperating with authorities. It is usually working with the U.S. State Department on an initiative to “disrupt the sale of synthetic drugs online and educate users in regards to the risks,” as Meta’s president of world affairs, Nick Clegg, said in an X post on March 15, three days before the WSJ article dropped.
The opioid epidemic is a serious public health issue that requires motion from all parts of US society. That’s why @Meta has joined the Alliance to Prevent Drug Harms alongside the @StateDept @UNODC & @Snapchat to assist disrupt the sale of synthetic drugs online + educate users…
— Nick Clegg (@nickclegg) March 15, 2024
The news sent Meta’s stock price falling on Tuesday, down about 2% to roughly $487 per share. Assuming this gets sorted out, the drop in price could make the worth more enticing for investors.
Restructuring results in earnings growth
Meta’s relatively low valuation provides a superb entry point for an organization that has been steadily growing and streamlining operations. In December, it averaged 3.2 billion day by day lively people (DAP) across its family of social media sites, which incorporates Facebook, Instagram, and WhatsApp, three of the 4 largest on this planet. That’s up 8% year-over-year. Facebook led the way in which with 2.1 billion DAP in December, up 6%.
Further, ad impressions increased by 28% year-over-year within the fourth quarter, with the typical price per ad up 2%. That helped revenue increase 25% in Q4 to $40.1 billion and net income climb 201% year-over-year to $14 billion, or $5.33 per share.
The earnings got a serious boost from Meta’s strategic plan to chop expenses last yr, which CEO Mark Zuckerberg called a “yr of efficiency.” Meta’s restructuring initiative, which included layoffs and consolidating facilities and expenses, resulted in costs and expenses dropping 8% within the fourth quarter. The operating margin greater than doubled to 41% in Q4 and for the complete yr it jumped to 35% from 25%. This not only boosted earnings, but improved money flow to strategically reinvest in 2024 and beyond in its Reality Labs virtual reality business in addition to artificial intelligence across its products.
The capital strength also allowed Meta to supply, for the primary time ever, a dividend. The corporate’s first quarterly dividend of fifty cents shall be paid to investors on March 26.
Growth outlook
Meta’s first quarter outlook calls for revenue of $34.5 to $37 billion, which can be up 7% to fifteen% over the primary quarter of 2023. It didn’t offer revenue or earnings guidance beyond Q1, but expenses and capital expenditures are expected to be up in 2024 because it invests within the areas where it sees essentially the most future growth.
“We’ve two major parts of our long-term vision, and along with AI the opposite part is the metaverse. We’ve invested heavily in each AI and the metaverse for a very long time, and we’ll proceed to achieve this,” Zuckerberg said on the Q4 earnings call. He later added, within the Q&A portion: “So the themes for the yr of efficiency were to make us a stronger technology company by becoming leaner and more balanced towards our engineering work and more streamlined and to enhance our financial performance, primarily with the goal of providing stability so we are able to spend money on these long-term, ambitious visions around AI and metaverse over what we see as the approaching decade or more as these items play out.”
The consensus earnings estimate calls for a couple of 20% compound annual growth rate for the following three years through 2026, and the typical 12-month price goal among the many 43 analysts that cover the stock is about $538 per share – which can be about an 8% increase over its current price.
That’s not shooting the lights out by any stretch, but its solid growth in a yr where the corporate invests heavily in potentially its next phase of growth.