Should You Buy Meta Platforms on the Dip? The shares of Meta Platforms (FB), formerly known as Facebook, have been slumping in price amid antitrust allegations and private lawsuits over the past few months. So, given optimistic growth...
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The shares of Meta Platforms (FB), formerly known as Facebook, have been slumping in price amid antitrust allegations and private lawsuits over the past few months. So, given optimistic growth prospects and favorable analyst estimates, is FB a buy now on its stock's price dip? Read more to find out.
The stock of Meta Platforms, Inc. (FB), formerly known as Facebook, Inc., which is headquartered in Menlo Park, Calif., has been slumping due to multiple antitrust allegations and lawsuits against the company over the past six months. The stock has declined 4.1% in price over the past six months and 15.5% over the past three months.
However, on December 1, FB requested that a U.S. court dismiss an antitrust lawsuit filed by the U.S. Federal Trade Commission (FTC) because the lawsuit has "no plausible factual support." Also, the company requested that the court not to allow the lawsuit to be refiled because the FTC failed to provide adequate evidence that FB acted "illegally" to protect a monopoly.
FB shares have gained 4% in price over the past five days to close yesterday's trading session at $322.81.
Here is what could shape FB's performance in the near term:
Metaverse Development
Facebook formally changed its name to Meta Platforms, Inc. on October 28, 2021. In a Founder's letter, CEO Mark Zuckerberg said, "The next platform will be even more immersive—an embodied internet where you're in the experience, not just looking at it. We call this the metaverse, and it will touch every product we build."
The new platform is designed to create a virtual ecosystem facilitating all requirements—communication, work, entertainment, shopping, art, etc. Augmented reality glasses are expected to promote the growth of metaverse, thereby improving the social experiences that exist today. Meta is also expected to support cryptocurrencies and non-fungible tokens (NFT). Moreover, safety, privacy, and strong governance are expected to be built on the platform.
The meta devices are expected to be priced at cost or subsidized to attract customers globally. The platform will also support side-loading and streaming from computers and offer developer and creator services at low fees.
Zuckerberg hopes that Metaverse will reach more than one billion people over the next decade, thereby raking in hundreds of billions of dollars of digital commerce.
Impressive Growth Story
FB's revenues have grown at a 29.4% CAGR over the past three years. Its EBITDA and net income rose at CAGRs of 24.5% and 27.4%, respectively, over this period. Its EPS has improved at a 28.2% rate per annum over the past three years, while levered free cash flow rose at a 32.2% rate per annum over this period. Also, both its total assets and tangible book value have grown at a 23.4% CAGR over the past three years.
Consensus Rating and Price Target Indicate Potential Upside
Of the 35 Wall Street analysts that rated FB, 29 rated it Buy, while six rated it Hold. The 12-month median price target of $406.31 indicates a 25.9% potential upside. The price targets range from a low of $300.00 to a high of $466.00.
POWR Ratings Reflect Rosy Prospects
FB has an overall B rating, which equates to Buy in our proprietary POWR Ratings system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.
FB has an A Quality grade and a Sentiment grade of B. Its 80.85% trailing-12-month gross profit margin is 56.5% higher than the 51.66% industry average, which is in sync with the Quality grade. In addition, analysts expect the company's revenues to increase 18.9% in its fiscal fourth quarter (ending December 2021) and 19.1% in fiscal 2022, justifying the Sentiment grade.
Of the 77 stocks in the Internet industry, FB is ranked #6.
In addition to the grades I have highlighted, one can view FB ratings for Growth, Stability, Momentum, and Value here.
Bottom Line
Tech giant FB is currently leading the transition to metaverse globally. With the company's unique product and services pipeline and strategic investments, it is expected to remain one of the most valuable tech companies in the world. While antitrust allegations are concerning, they have already been dismissed by a federal judge once in June. Thus, we think investing in FB now can reap substantial capital gains in the future.
How Meta Platforms, Inc. (FB) Stack Up Against its Peers?
While FB has a B rating in our proprietary rating system, one might want to consider looking at its industry peer Travelzoo (TZOO), which has an A (Strong Buy) rating.
FB shares were trading at $330.42 per share on Wednesday morning, up $7.61 (+2.36%). Year-to-date, FB has gained 20.96%, versus a 26.60% rise in the benchmark S&P 500 index during the same period.
Meta Platforms, Inc. (FB) is a part of the Entrepreneur Index, which tracks some of the largest publicly traded companies founded and run by entrepreneurs.
About the Author: Aditi Ganguly
Aditi is an experienced content developer and financial writer who is passionate about helping investors understand the do's and don'ts of investing. She has a keen interest in the stock market and has a fundamental approach when analyzing equities.
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