With a day's loss of -3.7%, a 3-month gain of 6.51%, and an Earnings Per Share (EPS) of 8.58, Meta Platforms Inc (META, Financial) poses an intriguing question for investors: is the stock modestly undervalued? This article aims to address this question through a comprehensive valuation analysis of the company. Read on to gain valuable insights into Meta Platforms' financial health, profitability, growth, and intrinsic value.
An Overview of Meta Platforms Inc
Meta Platforms, formerly known as Facebook, is the world's largest online social network, boasting 3.8 billion active users across its family of apps. The company's ecosystem primarily includes the Facebook app, Instagram, Messenger, WhatsApp, and numerous features surrounding these products. Users can access Facebook on both mobile devices and desktops. Advertising revenue constitutes more than 90% of the firm's total revenue, with over 45% originating from the U.S. and Canada and over 20% from Europe. As of September 15, 2023, Meta Platforms' stock price stands at $300.18, with a market cap of $772.40 billion.
Understanding the GF Value
The GF Value is a proprietary measure that estimates the current intrinsic value of a stock. It is calculated based on three factors:
- Historical trading multiples, such as the PE Ratio, PS Ratio, PB Ratio, and Price-to-Free-Cash-Flow.
- GuruFocus adjustment factor, which takes into account the company's past returns and growth.
- Future estimates of the business performance.
According to this method, Meta Platforms appears to be modestly undervalued. The GF Value Line, which represents the stock's ideal fair trading value, suggests that the stock's future return is likely to be higher than its business growth due to its current undervaluation.
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Meta Platforms' Financial Strength
Investing in companies with solid financial strength reduces the risk of permanent loss. The cash-to-debt ratio and interest coverage are useful indicators of a company's financial health. Meta Platforms' cash-to-debt ratio stands at 1.48, ranking lower than 70.83% of 569 companies in the Interactive Media industry. However, with an overall financial strength score of 8 out of 10, Meta Platforms' financial health remains robust.
Profitability and Growth
Companies with consistent profitability over the long term typically pose less risk for investors. Meta Platforms has been profitable for 10 out of the past 10 years, with an operating margin of 23.8%, ranking better than 83.73% of 584 companies in the Interactive Media industry. The company's profitability score is 9 out of 10, indicating strong profitability.
Growth is a critical factor in a company's valuation. Meta Platforms' 3-year average annual revenue growth is 20.6%, ranking better than 70.68% of 515 companies in the Interactive Media industry. The company's 3-year average EBITDA growth rate is 10.5%, ranking better than 52.7% of 389 companies in the same industry. This suggests that Meta Platforms' growth is reasonably strong.
ROIC vs WACC
Comparing a company's return on invested capital (ROIC) to its weighted average cost of capital (WACC) is another way to assess its profitability. If the ROIC is higher than the WACC, it implies that the company is creating value for shareholders. Over the past 12 months, Meta Platforms' ROIC was 17.19, while its WACC stood at 10.29, indicating a healthy return on invested capital.
Conclusion
In conclusion, Meta Platforms' stock appears to be modestly undervalued. The company's strong financial condition, robust profitability, and solid growth prospects make it an attractive investment. To learn more about Meta Platforms' stock, you can check out its 30-Year Financials here.
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