With a daily gain of 2.21% and a three-month gain of 16.05%, Meta Platforms Inc (META, Financial) has shown a robust performance. Coupled with an Earnings Per Share (EPS) of 8.58, the question arises - is the stock fairly valued? This article aims to answer that question by providing an in-depth analysis of the company's valuation. Let's dive in.
A Snapshot of Meta Platforms
Meta Platforms Inc (META, Financial), the world's largest online social network, boasts an impressive 3.8 billion family of apps monthly active users. The firm's ecosystem mainly consists of the Facebook app, Instagram, Messenger, WhatsApp, and many features surrounding these products. With advertising revenue representing more than 90% of the firm's total revenue, Meta Platforms has a significant presence in the U.S., Canada, and Europe. Currently, the stock price stands at $305.78, and with a GF Value (an estimation of fair value) of $333.1, the question of its fair valuation becomes pertinent.
Understanding the GF Value
The GF Value is an exclusive measure of a stock's intrinsic value. It is calculated based on historical trading multiples, a GuruFocus adjustment factor based on the company's past performance and growth, and future estimates of business performance. The GF Value Line gives an overview of the fair value that the stock should ideally be traded at. If the stock price is significantly above the GF Value Line, it is considered overvalued, and its future return is likely to be poor. Conversely, if it is significantly below the GF Value Line, its future return will likely be higher.
At its current price of $305.78 per share, Meta Platforms (META, Financial) has a market cap of $786.80 billion and is considered fairly valued. This implies that the long-term return of its stock is likely to be close to the rate of its business growth.
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Financial Strength of Meta Platforms
Investing in companies with poor financial strength can lead to a high risk of permanent capital loss. To avoid this, it's crucial to review a company's financial strength before deciding to purchase shares. Meta Platforms has a cash-to-debt ratio of 1.48, which ranks worse than 71.4% of 570 companies in the Interactive Media industry. However, the overall financial strength of Meta Platforms is 8 out of 10, indicating a strong financial position.
Profitability and Growth of Meta Platforms
Investing in profitable companies, especially those with consistent profitability over the long term, is less risky. Meta Platforms has been profitable for 10 out of 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%, which ranks better than 83.73% of 584 companies in the Interactive Media industry. Overall, the profitability of Meta Platforms is ranked 9 out of 10, indicating strong profitability.
Growth is one of the most important factors in the valuation of a company. Meta Platforms's 3-year average revenue growth rate is better than 71.07% of 515 companies in the Interactive Media industry. Its 3-year average EBITDA growth rate is 10.5%, which ranks better than 52.07% of 386 companies in the Interactive Media industry.
ROIC vs WACC
Comparing a company's return on invested capital and the weighted cost of capital can provide insight into its profitability. Return on invested capital (ROIC) measures how well a company generates cash flow relative to the capital it has invested in its business. The weighted average cost of capital (WACC) is the rate that a company is expected to pay on average to all its security holders to finance its assets. For the past 12 months, Meta Platforms's return on invested capital is 17.19, and its cost of capital is 10.3.
Conclusion
Overall, Meta Platforms (META, Financial) stock is believed to be fairly valued. The company's financial condition is strong, and its profitability is robust. Its growth ranks better than 52.07% of 386 companies in the Interactive Media industry. To learn more about Meta Platforms stock, you can check out its 30-Year Financials here.
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