Meta Platforms shares fell by -2.7% during the day's afternoon session, and are now trading at a price of $498.87. Is it time to buy the dip? To better answer that question, it's essential to check if the market is valuing the company's shares fairly in terms of its earnings and equity levels.
Meta Platforms's Valuation Is in Line With Its Sector Averages:
Meta Platforms, Inc. engages in the development of products that enable people to connect and share with friends and family through mobile devices, personal computers, virtual reality headsets, and wearables worldwide. The company belongs to the Technology sector, which has an average price to earnings (P/E) ratio of 32.54 and an average price to book (P/B) ratio of 4.25. In contrast, Meta Platforms has a trailing 12 month P/E ratio of 28.7 and a P/B ratio of 8.46.
When we divideMeta Platforms's P/E ratio by its expected five-year EPS growth rate, we obtain a PEG ratio of 0.92, which indicates that the market is undervaluing the company's projected growth (a PEG ratio of 1 indicates a fairly valued company). Your analysis of the stock shouldn't end here. Rather, a good PEG ratio should alert you that it may be worthwhile to take a closer look at the stock.
Strong Revenue Growth and Good EPS Growth:
| 2018 | 2019 | 2020 | 2021 | 2022 | 2023 | |
|---|---|---|---|---|---|---|
| Revenue (M) | $55,838 | $70,697 | $85,965 | $117,929 | $116,609 | $134,902 |
| Operating Margins | 45% | 34% | 38% | 40% | 25% | 35% |
| Net Margins | 40% | 26% | 34% | 33% | 20% | 28% |
| Net Income (M) | $22,112 | $18,485 | $29,146 | $39,370 | $23,200 | $39,098 |
| Net Interest Expense (M) | $9 | $20 | $672 | $461 | $276 | $677 |
| Depreciation & Amort. (M) | $4,315 | $5,741 | $6,862 | $7,967 | $8,686 | $11,178 |
| Diluted Shares (M) | 2,921 | 2,876 | 2,888 | 2,859 | 2,702 | 2,629 |
| Earnings Per Share | $7.57 | $6.43 | $10.09 | $13.77 | $8.59 | $14.87 |
| EPS Growth | n/a | -15.06% | 56.92% | 36.47% | -37.62% | 73.11% |
| Avg. Price | $171.51 | $181.64 | $234.55 | $321.17 | $219.36 | $498.87 |
| P/E Ratio | 22.42 | 28.03 | 22.95 | 22.96 | 25.42 | 32.84 |
| Free Cash Flow (M) | $15,359 | $21,212 | $23,584 | $38,993 | $19,044 | $43,847 |
| CAPEX (M) | $13,915 | $15,102 | $15,163 | $18,690 | $31,431 | $27,266 |
| Current Ratio | 7.19 | 4.4 | 5.05 | 3.15 | 2.2 | 2.67 |
Meta Platforms benefits from rapidly growing revenues and increasing reinvestment in the business, generally positive cash flows, and an excellent current ratio of 2.67. The company's financial statements show strong operating margins with a stable trend and a strong EPS growth trend.
