Metaplatforms (NASDAQ: META) It’s up nearly 2,000% since its 2012 IPO, but despite all its success, it’s been a hated stock for much of the time.
Throughout its history, the company has been hit by scandals, boycotts, multimillion-dollar fines, and antitrust attacks. It has been ridiculed for strategic decisions like its push into the metaverse and criticized for the addictive nature of its product.
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Despite all that, Meta has rewarded investors with monstrous profits. The stock is up 577% in the last ten years, as the chart below shows.
YCharts META Data
Meta’s strengths were evident in its latest earnings report, which sent shares up 10.4% on Thursday.
Revenue rose 24% to $59.9 billion and margins narrowed as spending on infrastructure and other areas increased, although operating income still rose 6% to $24.7 billion.
Management also pleased investors with its guidance, calling for revenue of between $53.5 billion and $56.5 billion in the first quarter, implying revenue growth of 30%, which would be its fastest growth rate in five years. Chief Financial Officer Susan Li credited its investments in AI-powered advertising, which improved targeting and measurement, and even added a generative AI tool to help advertisers create ads.
Even after jumping 10% in the earnings report, the stock still looks like a bargain.
Image source: Getty Images.
Adjusting for a tax valuation charge from the Big Beautiful Bill, Meta generated $74.7 billion in net income last year, or $29.04 in earnings per share.
Based on that earnings figure, the stock is currently trading at a price-to-earnings ratio of 25.4, making it cheaper than S&P 500which trades at a P/E of 28.1, and any of its “Magnificent Seven” peers.
YCharts NVDA PE Ratio Data
As you can see, Meta is trading at a more than 20% discount to all of its “Magnificent Seven” peers, based on the numbers above, even though its revenue is currently growing faster than all of those companies except NVIDIA.
Historically, Meta has traded at a discount and there is no other company of its size that has grown as quickly as it has, at a relatively low valuation. The chart below shows its revenue growth rate and P/E ratio over the past eight years.
YCharts META PE Ratio Data
As you can see, Meta’s P/E ratio averaged 26 over that period, which is roughly in line with the S&P 500, while its revenue growth averaged 23%. You’d be hard-pressed to find another stock that has grown so quickly at such a low level for so many years.
The market does not seem to know how to value MetaPlatforms, and the same could be said of Alphabetwhich, until a recent increase, had also been trading at a significant discount.
These companies have two of the widest economic moats in the world, and the revenue and profit margins to prove it. They have turned digital advertising into a duopoly, but they have been valued as average companies. They are software companies, but they trade at a deep discount compared to software-as-a-service (SaaS) stocks, which are typically valued based on a multiple of sales rather than earnings.
However, Meta and Alphabet have something more valuable than a subscription-based enterprise software product. They have platforms that billions of users interact with every day, sometimes for hours at a time, and they have developed very smart advertising models around those platforms that generate billions in high-margin profits and have no significant direct competition.
If you own a stock, you’ll typically want the valuation to go up, as that will increase your return.
However, Warren Buffett once argued that we should want a stock’s price to languish so that we could buy more and the company could buy back its shares at a good price. Low prices also favor net buyers of stocks, allowing you to add to your portfolio at good prices.
Meta’s modest valuation hasn’t stopped the stock from generating huge returns and lessens the risk of a stock decline if the broader market declines.
It’s good for investors that stocks continue to be misunderstood and undervalued. It will only help boost your profits in the long run.
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Jeremy Bowman has positions at Meta Platforms and Nvidia. The Motley Fool has positions and recommends Alphabet, Meta Platforms and Nvidia. The Motley Fool has a disclosure policy.
This ‘Magnificent Seven’ Stock Is Up 577% Over the Past Decade and Remains One of the S&P 500’s Best Deals Originally Posted by The Motley Fool
