Meta Platforms Inc (META, Financial), with a 3-month gain of 11.67% and a daily loss of -3.24%, has an Earnings Per Share (EPS) of 8.58. These figures suggest that the stock could be modestly undervalued. In this article, we will analyze Meta Platforms' valuation, financial strength, and growth prospects to answer this question. Please read on for a detailed analysis.
Introduction to Meta Platforms Inc (META, Financial)
Meta Platforms is the world's largest online social network, boasting 3.8 billion monthly active users across its family of apps. The firm's ecosystem primarily consists of Facebook, Instagram, Messenger, WhatsApp, and several features surrounding these products. Over 90% of the firm's total revenue comes from advertising, with more than 45% from the U.S. and Canada and over 20% from Europe. As of August 18, 2023, Meta Platforms' stock price stands at $275.85, compared to its estimated fair value (GF Value) of $330.04.
Understanding Meta Platforms' GF Value
The GF Value is a measure of a stock's intrinsic value, calculated based on historical multiples, GuruFocus adjustment factor, and future business performance estimates. The GF Value Line on the summary page indicates the stock's fair trading value. If the stock price is significantly above the GF Value Line, the stock is overvalued, and its future return is likely to be poor. Conversely, if it is significantly below the GF Value Line, it is undervalued, and its future return will likely be higher.
Given its current price of $275.85 per share and a market cap of $709.80 billion, Meta Platforms is estimated to be modestly undervalued. This suggests that the long-term return of its stock is likely to be higher than its business growth.
Meta Platforms' Financial Strength
Investing in companies with low financial strength could result in permanent capital loss. Therefore, it's crucial to review a company's financial strength before deciding to buy shares. Meta Platforms has a cash-to-debt ratio of 1.48, ranking worse than 71.79% of companies in the Interactive Media industry. However, GuruFocus ranks Meta Platforms' financial strength as 8 out of 10, indicating a strong balance sheet.
Profitability and Growth of Meta Platforms
Companies that have been consistently profitable over the long term offer less risk for investors. Meta Platforms has been profitable 10 over the past 10 years. Over the past twelve months, the company had a revenue of $120.50 billion and Earnings Per Share (EPS) of $8.58. Its operating margin is 23.8%, ranking better than 84.79% of companies in the Interactive Media industry. Overall, the profitability of Meta Platforms is ranked 10 out of 10, indicating strong profitability.
Growth is a crucial factor in a company's valuation. A faster-growing company creates more value for shareholders, especially if the growth is profitable. The 3-year average annual revenue growth of Meta Platforms is 20.6%, ranking better than 71.15% of companies in the Interactive Media industry. The 3-year average EBITDA growth rate is 10.5%, ranking better than 51.55% of companies in the Interactive Media industry.
ROIC vs WACC
Comparing a company's return on invested capital (ROIC) to its weighted average cost of capital (WACC) can evaluate its profitability. ROIC measures how well a company generates cash flow relative to the capital it has invested in its business. WACC is the rate that a company is expected to pay on average to all its security holders to finance its assets. If ROIC exceeds WACC, the company is likely creating value for its shareholders. Over the past 12 months, Meta Platforms' ROIC is 17.19, while its WACC is 10.53.
Conclusion
In summary, Meta Platforms' stock is estimated to be modestly undervalued. The company has strong financial strength and profitability, with growth ranking better than 51.55% of companies in the Interactive Media industry. For more detailed financials of Meta Platforms, check out its 30-Year Financials here.
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