Meta Platforms Reports Strong Q4 Results and Potential as Value Stock

Shares of Meta Platforms Inc. saw a significant increase in value after announcing impressive fourth-quarter results and the introduction of a dividend. This has raised questions about whether Meta can be considered a value stock, typically associated with mature companies that provide consistent performance, pay dividends, and trade at relatively low valuations compared to the overall market.

Last Friday, Meta’s stock rose by 20% following a 25% increase in revenue and a threefold rise in profit from the same quarter the previous year. This growth sparked investor enthusiasm, indicating they believed the shares were undervalued at Thursday’s closing price.

Looking ahead, Meta’s forward price-to-earnings (P/E) ratio is worth considering. Using Friday’s closing price and updated consensus earnings per share estimates for the next 12 months, Meta is rated among the ‘Magnificent Seven,’ a term referring to the seven largest U.S. companies that dominated the 2023 S&P 500 rally, alongside Microsoft Corp., Apple Inc., Amazon.com Inc., Alphabet Inc., Nvidia Corp., and Tesla Inc.

Among the ten largest companies in the S&P 500 by market capitalization, Meta is the second-cheapest based on forward P/E ratio. This group of ten stocks accounts for over 33% of the SPDR S&P 500 ETF Trust’s portfolio, highlighting their significance. Although Meta’s forward P/E of 24 is above its five-year average, it remains below its ten-year average. A majority of the group’s stocks trade above their five and ten-year averages, with the index itself surpassing both averages.

Examining expected compound annual growth rates (CAGR) for sales, earnings per share (EPS), and free cash flow (FCF) per share until 2025 provides further insights into these companies. Based on consensus estimates among analysts, Meta is projected to achieve a CAGR of 14.3% in sales per share, 24.1% in EPS, and 11.2% in FCF per share. While these figures are below the rates of companies like Microsoft and Nvidia, they still demonstrate considerable growth potential.

Overall, Meta Platforms Inc. reported exceptional Q4 results that led to a surge in its stock price. Considering its current valuation and future growth prospects, many investors are starting to view Meta as a potential value stock, despite being part of the high-growth technology sector. The company’s forward P/E ratio, relative to both its historical averages and those of its peers, suggests an attractive investment opportunity.