Meta Platforms Stock: Attractive Valuation (NASDAQ:META)

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Fritz Jorgensen

Meta Platforms (NASDAQ:META) (previously Facebook) has been experiencing some headwinds of late because of weakening promoting demand and international currency trade charges. This has led to Meta’s internet earnings declining 29% for the primary six months of its fiscal 12 months. With the stock buying and selling near its 52-week low, it supplies long-term traders with a possibility to purchase the stock at a sexy valuation. Yet, regardless of the challenges the corporate faces, it continues to develop its person base and engagement throughout its household of apps.

Meta Stock Chart

Google Finance

Analysis

Buy Rating: I’ve a Buy ranking for Meta’s stock with a five-year goal worth of $451 per share.

In my analysis of Meta stock, I consider the corporate can proceed to develop its income long run with a 20% development fee. This is a conservative estimate relative to the 33% development fee the corporate has seen within the final 5 years. Albeit, we’re in a brand new section of the market with excessive inflation that’s tempering development shifting ahead.

With the corporate’s means to monetize person engagement into revenues, I’m estimating that the corporate can proceed to generate internet margins within the excessive 20s to low 30s. For functions of this analysis, I’ll use a 28% internet margin shifting ahead.

In phrases of valuation, I’m estimating that Meta’s stock will ultimately trade on par with the general market, which at the moment stands at 17. As the general market recovers, I anticipate Meta’s stock’s price-to-earnings ratio (P/E) to increase as nicely. Lastly, the corporate has a further $24 billion approved for his or her share repurchase program. At present costs, I estimate that Meta’s excellent shares will lower by 136 million shares. This will finally have an impact of boosting returns to traders by a further 10%.

Below is a desk contrasting the corporate’s present metrics (as of the tip of its final fiscal 12 months) and stock worth to the 5-year estimate:

Meta Platforms

Current* (as of 8/11/22)

5-Year Estimate

Revenue (in hundreds of thousands)

$117,930

$244,538

Net Margin (%)

33.384%

28.16%

Net Income (in hundreds of thousands)

$39,370

$68,862

# Outstanding Shares

2,859,000,000

2,592,000,000

Net Income per Share

$13.77 per share

$26.57 per share

Price/Earnings (PE) Ratio

13

17

Stock Price

$177.49

$451

Source of firm metrics: Morningstar, Meta Platforms

*Current metrics based mostly on fiscal 12 months finish 2021

How to Read the Table

The desk above reveals the metrics I take advantage of in calculating the stock’s future goal worth. Taking the newest 12 months finish revenues in hundreds of thousands ($117,930) and multiplying it by the estimated development fee (on this occasion 20%) over 5 years, you get the estimated revenues 5 years out of $244,538 (in hundreds of thousands).

You then multiply the income 5 years out with the estimated internet margin (28.16% for Meta in 2026) to reach on the internet earnings of $68,862 (in hundreds of thousands). Divide the online earnings by the variety of excellent shares (2,592,000,000), and also you arrive on the estimated internet earnings per share of $26.57.

To get the estimated share worth in 5 years, multiply the online earnings per share ($26.57) by the estimated P/E (17) in 5 years. This leads to a share worth of $451. At its present worth of $177.49, and a 5 12 months estimated worth of $451 per share, Meta’s stock may doubtlessly return 154% in 5 years or a median annual return of 30.8%.

Author’s Note

As a long-term investor, I present a 5-year worth goal. In figuring out a stock for a Buy ranking, I search for shares that may double in worth inside 5 years. This would produce near a 20% annual return which might nonetheless exceed the market’s long-term common annual return of 8.91%.

When estimating a goal worth sooner or later, I attempt to be as clear as doable within the methodology and metrics I take advantage of in my analysis and analysis to achieve the reader’s confidence in my conclusions. This is a strategy that I’ve efficiently used for over 25 years as an funding adviser and portfolio supervisor by the bull market of the Nineteen Nineties, the dotcom bubble, the credit score disaster of 2008-2009 and extra just lately by the Great Resignation.



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