Meta Platforms Inc. Reports Record Q4 Earnings and Introduces Dividend, Raises Questions of Stock Value

Shares of Meta Platforms Inc. surged as the company delivered exceptional fourth-quarter results and announced the introduction of a dividend, prompting investors to consider its stock as a potential value opportunity. Typically, value stocks are associated with mature companies that exhibit stable performance, pay dividends, and trade at lower valuations compared to the overall market.

On Friday, Meta’s stock skyrocketed by 20% following the announcement of a 25% increase in revenue and a threefold rise in profit compared to the previous year’s quarter. This substantial growth indicated to investors that the shares were undervalued at Thursday’s closing price. The events of Friday created an eventful day for Meta and its CEO.

To determine whether Meta’s stock can be considered a value stock or a bargain, let’s examine its forward price-to-earnings (P/E) ratio. The calculations are based on Friday’s closing price, considering the 20% surge, and updated consensus estimates for earnings per share during the next 12 months from analysts surveyed by FactSet. Meta is part of a group known as the “Magnificent Seven,” comprised of large U.S. companies that played a dominant role in the 2023 rally for the S&P 500.

The Magnificent Seven consists of Meta Platforms Inc., Microsoft Corp., Apple Inc., Amazon.com Inc., Alphabet Inc., Nvidia Corp., and Tesla Inc. By expanding the list to the top 10 companies in the S&P 500 based on market capitalization, we can compare their forward P/E ratios to their rolling 5-year and 10-year averages, using rolling 12-month EPS estimates.

Among the selected companies, Meta Platforms Inc. ranks as the second-cheapest by forward P/E. The Magnificent Seven have a significant 29% weighting in the SPDR S&P 500 ETF Trust, while the top 10 stocks constitute over 33% of the fund. Although Meta’s forward P/E of 24 is higher than its 5-year average, it remains below its 10-year average. Conversely, six out of 10 stocks trade above their 5-year averages, with five surpassing their 10-year averages. The forward P/E for the S&P 500 exceeds both of its averages.

Looking to the future, let’s explore the expected compound annual growth rates (CAGR) for sales, EPS, and free cash flow per share until 2025. These estimates are based on consensus forecasts from analysts polled by FactSet. As Microsoft, Nvidia, Apple, and Broadcom have fiscal years that differ from the calendar, the estimates follow the calendar year pattern.

Meta Platforms Inc. is projected to achieve a CAGR of 14.3% for sales per share through 2025, accompanied by a 24.1% CAGR for EPS and an 11.2% CAGR for free cash flow per share. Comparing these figures to other companies in the selected group and the S&P 500 index reveals a positive outlook for Meta.