Meta Platforms Inc. Reports Record Fourth Quarter Earnings and Introduces Dividend

Shares of Meta Platforms Inc. witnessed a significant surge in value on Friday following the company’s exceptional fourth-quarter results and the announcement of a new dividend. This raises the question of whether Meta should now be considered a value stock, typically characterized by mature companies with steady performance, potential dividends, and relatively low valuations compared to the broader market.

After Meta’s stock rose by 20% in response to the company’s announcement of a 25% increase in revenue and tripled profits from the same quarter the previous year, investors were clearly impressed by the substantial growth and saw the shares as undervalued compared to Thursday’s closing price. Here is a detailed analysis of Meta’s remarkable Friday and its impact on the market.

To determine if Meta can be classified as a value stock, let’s first examine its forward price-to-earnings (P/E) ratio. This ratio is based on Meta’s closing price on Friday, following the 20% surge, and updated consensus estimates for earnings per share for the next 12 months from analysts polled by FactSet. Meta belongs to the esteemed group of companies known as the ‘Magnificent Seven,’ which dominated the 2023 rally for the S&P 500.

The other members of this group include Microsoft Corp., Apple Inc., Amazon.com Inc., Alphabet Inc., Nvidia Corp., and Tesla Inc. Expanding the list to include the top 10 largest companies in the S&P 500 by market capitalization, let’s compare their forward P/E ratios with their respective rolling 5-year and 10-year averages based on 12-month EPS estimates:

Meta is ranked second in terms of being the cheapest stock based on forward P/E among the top 10 stocks in the S&P 500. It is worth noting that this group carries considerable weight in the SPDR S&P 500 ETF Trust, accounting for 33% of the fund compared to the Magnificent Seven’s 29% weighting. While Meta’s forward P/E of 24 is above its 5-year average, it remains below its 10-year average. Among these 10 stocks, six trade above their 5-year averages, and five trade above their 10-year averages. The forward P/E of the index itself is above both of its corresponding averages.

Continuing in the same order, let us now examine the expected compound annual growth rates (CAGR) for sales, EPS, and free cash flow (FCF) per share for this group and the index, through 2025. These estimates are based on consensus figures collected from analysts polled by FactSet, and since Microsoft, Nvidia, Apple, and Broadcom have fiscal years that do not align with the calendar, we will refer to calendar years:

From these estimates, it is evident that Meta is expected to achieve a 14.3% CAGR for sales per share, a 24.1% CAGR for EPS, and an 11.2% CAGR for FCF per share until 2025. While it may not have the highest growth rates among the group, it is still quite impressive. It is also worth mentioning that Meta’s stock currently trades below its forward P/E despite the anticipated growth.

Considering Meta’s strong fourth-quarter performance, its comparative valuation, and its future growth prospects, it is reasonable to debate whether Meta can be regarded as a value stock despite its recent surge in stock price. Investors and market analysts will continue to monitor Meta Platforms Inc. with great interest as it navigates the evolving landscape of technology and social media.