- Meta Platforms (FB) is historically cheap and now sits in ‘value’ territory.
- Meta has 100%+ upside at current price levels.
- Problems are easily explicable which is a reason to buy.
Historically Cheap
If Meta Platforms (NASDAQ:FB) stock is beaten down currently, then it’s also massively cheap. Market sentiment for shares is currently very poor. When the market sours, prices drop. Simple enough. But let’s put some numbers to the current situation facing Meta.
It isn’t often that investors mention Meta and value stocks in the same breath. But traditional value metrics suggest that it is indeed just that, a value pick.
The shares currently carry a P/E ratio of 14.47, very near its decade low of 13.93. Predicting an exact bottom isn’t the point here. The point is that over the past 12 years – a time frame measured by Gurufocus, not me – FB stock has had a median P/E ratio of 34.90.
| FB | Meta Platform | $108.05 |
Double Upside
That alone suggests that FB shares have the inherent potential to more than double (34.90/14.37 = 2.42).
That would mean that if the P/E ratio rises to its median level that FB shares would move to $462.92 each. Does that sound absurd? Well, it might not be.
For one, the current analyst high price is $553. That’s less than $462.92 to be sure. And Gurufocus, the site I mentioned paragraphs above, assesses FB stock’s value at $392.87 today based on its proprietary valuation analysis that includes P/E ratio, P/S ratio, P/B ratio, and price to free cash flow.
The Problem
Meta floundered in February on disappointing earnings. In essence, Meta saw net income decrease 8% during the last three months of 2021 compared to the previous year.
Note that revenue increased 20% over the same period. It wasn’t that investors had soured on the business’s ability to make sales. Rather, the issue was that investors didn’t appreciate Facebook’s pivot to the metaverse. That pivot diverted earnings into an unproven — and to some speculative — business model, cutting into EPS along the way.
Fast Forward
Three months later and FB stock isn’t doing much better. It posted some impressive numbers including 1.96 billion daily active users, ahead of consensus figures and a reversal of declines in the previous quarter. Likewise, EPS figures reached $2.72, besting the $2.56 that was anticipated.
But at the same time, a turnaround isn’t entirely clear. The Facebook parent firm is predicting between $28 to $30 billion in revenue in the upcoming quarter. That’s slightly less than the $30.7 billion Wall Street had been hoping for.
For its part, Meta notes that the ongoing Russian invasion of Ukraine has slashed its revenues as it has suspended Facebook service in Russia.
Takeaway
In short, there’s simply too much upside to ignore. FB stock is likely to be a case of I wish I had bought back when it traded under $200 for those who don’t act soon.
On the date of publication, Alex Sirois 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.
