Meta Platforms (NASDAQ:FB) has been on fire, rallying 25% in two weeks. And FB stock isn’t alone, because much of the market is tracking almost as well. The move is completely counterintuitive since fear is still relatively high.
A few months ago, we had all-time highs that came crashing down into two corrections. The first one was late January, but the deeper one came on Feb. 24. Equity markets stumbled after Russia’s invasion of Ukraine. But since then, a lot has happened, including a 12% S&P 500 rally. As a result, markets are within 4% of an all-time high, even though threats still linger.
FB stock has outperformed, but in all fairness, it is coming from a deeper hole than most. It lost half its value since the correction started last September. Normally, I hesitate chasing after a stock that rallies as much as this one. However, for patient investors, FB still can offer substantial upside opportunities.
This, of course, has to work within the confines of the market as a whole. Therefore, my upside enthusiasm assumes that Ukraine’s struggle does not worsen. I also believe the Federal Reserve is not looking to break the market, but simply cool it down. Lately, we’ve even had a resurgence of lockdown fears from China.
FB Stock Fundamentals Are Beyond Reproach
Each of these black clouds are big enough alone to derail the indices. But if the threats don’t all break, Meta Platforms’ fundamentals will help the stock prevail. After all, this company has three billion monthly active users. A potential that large is extremely hard to mess up.
Last year, Meta announced its commitment to creating a new world, literally. The metaverse is coming, and FB stock is likely to own it. The company won’t be alone, but the advantage will probably be like Amazon’s (NASDAQ:AMZN) cloud dominance.
The concept is extremely intriguing and may become a self-fulfilling prophecy. If this social media behemoth decides to go in one direction, I bet the rest will follow. Meta is in the driver’s seat, and it’s not likely it’ll make easy mistakes. Until then, the current fundamentals can help it stand on its own two feet.
Its income statement is now 6.5 times larger than it was seven years ago. Meta’s net income last year was more than twice that of 2015’s total revenues. Clearly management knows what they’re doing, so they earned the benefit of the doubt. Since it generated $58 billion in cash from operations, it will have enough capital to feed the new metaverse commitment.
The Bottom Line on FB Stock
FB remains cheap even in the traditional sense. Its 20x price-to-earnings (P/E) ratio is more than 40% cheaper than Apple’s (NASDAQ:AAPL). There is clearly no bloat in FB stock at these levels. The rally back is not likely to be easy, but it won’t be impossible. With a bit of help from the indices, Meta could even reach $270 by summer.
There will be resistances going into the gap, which starts at $249 per share. But if the bulls take their time developing a strong base, they will be able to prevail.
If geopolitical events sour extensively, this stock will need all the help it can get from its support. It has plenty to keep it above $200 per share. But with markets near all-time highs, there’s plenty of room for corrections. So, investors must be vigilant and avoid going all in at once.
On the date of publication, Nicolas Chahine did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.