Down 35% in the past month following a disastrous earnings report and disappointing forward guidance, shares of Meta Platforms (NASDAQ:FB) look extremely cheap at current valuations. FB stock closed on Feb. 16 at $216.54.
Following its monstrous post-earnings selloff, the company formerly known as Facebook is down nearly 45% below its 52-week high of $384.33. Even more interesting, Meta Platforms now has a price-to-earnings (P/E) ratio of 15.8, which is well below the average P/E ratio among technology stocks of 25, and in-line with the average P/E ratio among the 500 companies listed on the S&P 500 index (small, medium and large caps).
Consider that fast food restaurants McDonald’s (NYSE:MCD) and Starbucks (NASDAQ:SBUX) each have P/E ratios higher than Meta’s and you get an idea of just high affordable the social network has become.
A Disastrous Print
To say that Meta Platforms fourth quarter earnings were a disaster is like saying the Titanic ran into rough seas. FB stock fell 26% the day after its latest numbers were released, erasing $232 billion of market capitalization and making it the biggest one-day drop in value in the history of the stock market.
To put the one-day loss into context, Meta Platforms lost more than the market value of companies such as Netflix (NASDAQ:NFLX), Morgan Stanley (NYSE:MS) and General Motors (NYSE:GM). It’s almost difficult to quantify how ugly the stampede for the exits was after Meta’s quarterly print. Sadly, the pain has continued, with Meta stock continuing to slide in recent weeks.
The reason people ran screaming for the lifeboats was that Meta Platforms reported its Facebook platform had 1.929 billion daily users in the fourth quarter, representing a decline (from 1.93 billion) for the first time in the company’s history. The Silicon Valley stalwart also forecast that its revenue in the current first quarter would come in at $27 billion to $29 billion, compared to $30.25 billion anticipated by Wall Street.
Teens and young adults are increasingly choosing platforms such as TikTok and YouTube for entertainment over Facebook. The company also said that its lucrative targeted advertising business is struggling following privacy changes made to Apple’s (NASDAQ:AAPL) iOS software that’s used in iPhones and other consumer electronic devices.
It all added up to a doom and gloom report that has shaken confidence in the company that was founded in a Harvard dorm room by chief executive officer Mark Zuckerberg. The slowing growth and underwhelming guidance also come at a fragile time for Meta Platforms, which is fighting regulatory battles on multiple fronts and shifting its corporate strategy to focus on the virtual reality realm known as the “metaverse,” which is largely theoretical at this point and leaving many investors scratching their heads.
The company changed its name to Meta Platforms last fall to reflect its new corporate direction. Some analysts say, though, that the company’s leadership has lost the road map.
Fire Sale Prices for FB Stock
Even before the earnings wreckage, Meta Platforms was coming off a very difficult year. In addition to the privacy changes wrought by Apple, political haranguing over the size and power of big tech and abrupt corporate rebrand, the company also endured a very public whistleblower controversy where in a former executive accused the company of deliberately stoking controversy and spreading misinformation as a means of gaining and holding people’s attention.
Through it all, Wall Street stuck by Meta Platforms due to its constant growth and powerful revenue generation. After all, the Facebook social media platform still counts 2.89 billion active users, which is roughly 35% of the world’s population.
That Meta Platforms is now warning of slowing growth and lower than expected revenue at the same time that it is transitioning to the still unproven metaverse has many investors and analysts now reaching for the “sell” button.
However, not everyone is heading for the fire escape just yet. There are a number of professional analysts who say that FB stock is now too cheap to ignore and that investors should treat the massive selloff as a buying opportunity given Meta Platforms’ extremely cheap valuation relative to its high growth technology peers.
These same analysts also point to Meta’s pipeline of products such as its popular Oculus virtual reality headsets and ownership of other popular social media sites such as Instagram and What’s App as further reasons to pile into the stock.
Buy FB Stock While It’s on Sale
There are certainly a lot of unknowns with Meta Platforms, and it will likely take many months if not years for the company to sort itself out and chart a profitable path within the metaverse that it is helping to create. But it is hard to ignore just how cheap the valuation of Meta stock has become. The company’s shares are literally trading at fire sale prices right now, and investors who have the conviction to buy and hold them long-term are likely to be rewarded.
That said, the selloff in Meta Platforms stock (which many believe will soon change its ticker symbol to META) may not be done. As such, investors should start with a small position and plan to buy more if the share price declines further. FB stock is a buy.
— Joel Baglole
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Source: Investor Place