Meta Platforms Inc (META, Financial) has recently seen a daily loss of -3.18% and a 3-month gain of 12.15%. With an Earnings Per Share (EPS) of 8.58, the question arises: is the stock modestly undervalued? This analysis aims to answer this question by examining the company's valuation, financial strength, profitability, and growth. We encourage readers to delve into the following analysis for a comprehensive understanding of the company's value.
Company Introduction
Meta Platforms Inc, the world's largest online social network, boasts 3.8 billion monthly active users across its family of apps. Users engage in various ways, exchanging messages, sharing news events, photos, and videos. The firm's ecosystem primarily consists of the Facebook app, Instagram, Messenger, WhatsApp, and many features surrounding these products. More than 90% of the firm's total revenue comes from advertising, with over 45% coming from the U.S. and Canada and more than 20% from Europe.
Currently, Meta Platforms trades at $277.64 per share, with a market cap of $714.40 billion. When compared to the GF Value of $331.3, the stock appears to be modestly undervalued. This comparison provides a basis for a deeper exploration of the company's value.
Understanding the GF Value
The GF Value represents the intrinsic value of a stock, calculated based on historical multiples, a GuruFocus adjustment factor, and future business performance estimates. The GF Value Line provides an overview of the fair value at which the stock should ideally be traded. If the stock price is significantly above the GF Value Line, it is overvalued, and its future return is likely to be poor. Conversely, if it is significantly below the GF Value Line, its future return will likely be higher.
Meta Platforms' GF Value suggests that the stock is modestly undervalued. Given this, the long-term return of its stock is likely to be higher than its business growth.
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Financial Strength
Investing in companies with low financial strength could result in permanent capital loss. Hence, it's crucial to thoroughly review a company's financial strength before purchasing shares. Meta Platforms has a cash-to-debt ratio of 1.48, ranking worse than 70.61% of 558 companies in the Interactive Media industry. Despite this, GuruFocus ranks Meta Platforms' financial strength as 8 out of 10, suggesting a strong balance sheet.
Profitability and Growth
Investing in profitable companies carries less risk, particularly those demonstrating consistent profitability over the long term. Meta Platforms has been profitable 10 years over the past 10 years, with revenues of $120.50 billion and Earnings Per Share (EPS) of $8.58 in the past 12 months. Its operating margin of 23.8% is better than 82.25% of 586 companies in the Interactive Media industry, leading GuruFocus to rank Meta Platforms' profitability as strong.
Growth is a crucial factor in company valuation. Companies that grow faster create more value for shareholders, especially if that growth is profitable. The average annual revenue growth of Meta Platforms is 20.6%, ranking better than 71.21% of 514 companies in the Interactive Media industry. The 3-year average EBITDA growth is 10.5%, ranking better than 51.54% of 390 companies in the Interactive Media industry.
ROIC vs WACC
Comparing a company's return on invested capital (ROIC) and the weighted cost of capital (WACC) provides another perspective on its profitability. The ROIC measures how well a company generates cash flow relative to the capital it has invested in its business. The WACC is the rate that a company is expected to pay on average to all its security holders to finance its assets. For the past 12 months, Meta Platforms' ROIC is 17.19, and its cost of capital is 10.44.
Conclusion
Overall, Meta Platforms (META, Financial) stock shows every sign of being modestly undervalued. The company's financial condition is strong, and its profitability is robust. Its growth ranks better than 51.54% of 390 companies in the Interactive Media industry. To learn more about Meta Platforms stock, you can check out its 30-Year Financials here.
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