Meta Platforms Inc (META, Financial), formerly known as Facebook, has recently seen a daily gain of 3.49%. However, over the past three months, the company has experienced a loss of -4.81%, with an Earnings Per Share (EPS) (EPS) of 8.58. This leads to the question: Is the stock fairly valued? By analyzing the company's financials and market performance, we aim to provide a comprehensive answer to this question. Read on to discover our findings.
Company Introduction
Meta Platforms Inc (META, Financial) is the world's largest online social network, with 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. Advertising revenue represents more than 90% of the firm's total revenue, with more than 45% coming from the U.S. and Canada and over 20% from Europe. As of October 30, 2023, the company's stock price stands at $307.09, with a market cap of $789.20 billion. The GF Value, which is an estimate of the fair value, is $320.1.
Understanding the GF Value
The GF Value is a proprietary measure of a stock's intrinsic value. It is calculated based on 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. If the stock price is significantly above the GF Value Line, it is overvalued and its future return is likely to be poor. On the other hand, if it is significantly below the GF Value Line, its future return will likely be higher.
Based on the GuruFocus Value calculation, Meta Platforms (META, Financial) stock is believed to be fairly valued. Because Meta Platforms 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 low financial strength could result in permanent capital loss. Therefore, it is crucial to carefully review a company's financial strength before deciding whether to buy shares. Looking at the cash-to-debt ratio and interest coverage can give a good initial perspective on the company's financial strength. Meta Platforms has a cash-to-debt ratio of 1.69, which ranks worse than 68.84% of 568 companies in the Interactive Media industry. Based on this, GuruFocus ranks Meta Platforms's financial strength as 8 out of 10, suggesting a strong balance sheet.
Profitability and Growth
Investing in profitable companies, especially those that have demonstrated consistent profitability over the long term, poses less risk. 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 28.96%, which ranks better than 88.68% of 583 companies in the Interactive Media industry. Overall, GuruFocus ranks the profitability of Meta Platforms at 9 out of 10, which indicates 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 70.08% of 518 companies in the Interactive Media industry. Meta Platforms's 3-year average EBITDA growth rate is 10.5%, which ranks better than 53.35% of 388 companies in the Interactive Media industry.
ROIC vs WACC
Another way to look at the profitability of a company is to compare its return on invested capital and the weighted cost of capital. 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. We want to have the return on invested capital higher than the weighted cost of capital. For the past 12 months, Meta Platforms's return on invested capital is 21.31, and its cost of capital is 10.72.
Conclusion
In conclusion, the stock of Meta Platforms (META, Financial) is believed to be fairly valued. The company's financial condition is strong and its profitability is strong. Its growth ranks better than 53.35% of 388 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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This article, generated by GuruFocus, is designed to provide general insights and is not tailored financial advice. Our commentary is rooted in historical data and analyst projections, utilizing an impartial methodology, and is not intended to serve as specific investment guidance. It does not formulate a recommendation to purchase or divest any stock and does not consider individual investment objectives or financial circumstances. Our objective is to deliver long-term, fundamental data-driven analysis. Be aware that our analysis might not incorporate the most recent, price-sensitive company announcements or qualitative information. GuruFocus holds no position in the stocks mentioned herein.
