Meta Platforms Inc (META, Financial) has recently seen a 2.2% daily gain, and a 3-month gain of 6.93%. With an Earnings Per Share (EPS) (EPS) of 8.58, the question arises: is the stock fairly valued? This article offers a detailed analysis to answer this question. Keep reading to gain valuable insights into Meta Platforms' valuation.
Company Overview
Meta Platforms is the world's largest online social network, boasting a staggering 3.8 billion family of apps monthly active users. The firm's ecosystem consists mainly of the Facebook app, Instagram, Messenger, WhatsApp, and many features surrounding these products. Users can access Facebook on mobile devices and desktops. Advertising revenue represents more than 90% of the firm's total revenue, with over 45% coming from the U.S. and Canada and more than 20% from Europe.
Currently, Meta Platforms' stock is trading at $306.82 per share, with a market cap of $789.50 billion. When compared to the GF Value of $338.13, the stock appears to be fairly valued.
Understanding GF Value
The GF Value is a proprietary measure of a stock's intrinsic value, computed by considering historical trading multiples, a GuruFocus adjustment factor based on past performance and growth, and future business performance estimates. The GF Value Line on our summary page gives an overview of the fair value that the stock should be traded at.
According to GuruFocus Value calculation, Meta Platforms stock is believed to be fairly valued. Since it is fairly valued, the long-term return of its stock is likely to be close to the rate of its business growth.
Financial Strength
Investing in companies with poor financial strength carries a higher risk of permanent loss of capital. Thus, it is crucial to review the financial strength of a company before deciding whether to buy its stock. Looking at the cash-to-debt ratio and interest coverage is a great starting point for understanding the financial strength of a company.
Meta Platforms has a cash-to-debt ratio of 1.48, which is worse than 71.53% of 569 companies in the Interactive Media industry. However, GuruFocus ranks the overall financial strength of Meta Platforms at 8 out of 10, indicating that the financial strength of Meta Platforms is strong.
Profitability and Growth
Investing in profitable companies carries less risk, especially in companies that have demonstrated consistent profitability over the long term. Typically, a company with high profit margins offers better performance potential than a company with low profit margins. Meta Platforms has been profitable for 10 out of the past 10 years. During the past 12 months, the company had revenues of $120.50 billion and an EPS of $8.58. Its operating margin of 23.8% is better than 84.1% of 585 companies in the Interactive Media industry. Overall, GuruFocus ranks Meta Platforms's profitability as strong.
Growth is probably the most important factor in the valuation of a company. 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%, which ranks better than 70.54% of 516 companies in the Interactive Media industry. The 3-year average EBITDA growth rate is 10.5%, which ranks better than 53.91% of 384 companies in the Interactive Media industry.
Return on Invested Capital vs Weighted Average Cost of Capital
Another way to assess the profitability of a company is to compare its return on invested capital (ROIC) and the weighted average cost of capital (WACC). ROIC measures how well a company generates cash flow relative to the capital it has invested in its business. The WACC is the rate that a company is expected to pay on average to all its security holders to finance its assets. We want to have the ROIC higher than the WACC. For the past 12 months, Meta Platforms's ROIC is 17.19, and its WACC is 10.58.
Conclusion
In conclusion, Meta Platforms' stock is believed to be fairly valued. The company's financial condition is strong, and its profitability is impressive. Its growth ranks better than 53.91% of 384 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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