Meta Platforms (NASDAQ: META) is undoubtedly a leader in the internet economy. It owns popular social media apps — including Facebook, Instagram, and WhatsApp — used by billions of people across the globe. What its founder and CEO, Mark Zuckerberg, has accomplished is truly remarkable.
But is this “Magnificent Seven” stock a good investment for your portfolio right now? Here’s why I believe it is.
Meta’s growth and financials
Meta commands about 18% of the global market for digital advertising sales. According to Grand View Research, that industry is expected to see more than 15% annual revenue growth throughout the rest of the decade. This provides a strong tailwind for the business to continue expanding.
In the past five years, sales climbed at a compound annual rate of 18.3%. Wall Street analysts believe the company’s top line will advance at a yearly pace of 15.3% between 2023 and 2026, a robust outlook.
Management’s strategy involves growing its massive user base and making it more engaged with the company’s family of apps. Besides that, it’s all about monetizing this attention via digital advertisements, which represent 98% of companywide sales.
The business is fully focused on its artificial intelligence (AI) push. It is investing aggressively to build out its network infrastructure and computing power, with $37 billion to $40 billion in spending planned for this year. And the high capital outlays aren’t going to end anytime soon.
“We currently expect significant capital expenditures growth in 2025 as we invest to support our artificial intelligence research and product development efforts,” the chief financial officer said in the latest earnings press release.
Meta’s overarching objective with these investments is to become an even more indispensable tool for its users, whether that’s adding functionality for consumers or boosting advertisers’ ability to better target their audience.
Given that the business is in solid financial shape, it seems to always be on the offensive. Meta posted a stellar 38% operating margin last quarter (the second quarter of 2024, ended June 30). And it garnered $10.9 billion in free cash flow during those three months. The company also has a pristine balance sheet, with a net cash position of about $40 billion.
Are Meta shares overvalued?
Since the start of 2023, Meta’s stock has catapulted 317% higher, driven by a combination of strong financial performance and improving market sentiment. As of this writing, shares trade at a price-to-earnings ratio (P/E) of 25.6, much higher than the multiple of below 10 they had 22 months ago. The market has come back around to appreciating the business.
Prospective investors must be wondering if the current valuation signals an expensive stock. On the one hand, Meta trades at a premium to the overall S&P 500. And it’s slightly more expensive than Alphabet, another digital ad giant.
However, I believe the current P/E is still very compelling. Based on the previously mentioned growth trends, as well as its impressive financial position, Meta is a quality business.
What’s more, the company has one of the widest economic moats in the world, supported by powerful network effects. There are nearly 3.3 billion daily active users on its various social media apps, which makes it almost impossible for a rival service to scale up to this level. Everyone uses Meta’s family of apps because everyone they know does. It’s difficult to envision this dominant position changing anytime soon.
Even after the stock’s impressive run recently, it still looks like a smart buy.
Should you invest $1,000 in Meta Platforms right now?
Before you buy stock in Meta Platforms, consider this:
The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Meta Platforms wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.
Consider when Nvidia made this list on April 15, 2005… if you invested $1,000 at the time of our recommendation, you’d have $652,404!*
Stock Advisor provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month. The Stock Advisor service has more than quadrupled the return of S&P 500 since 2002*.
See the 10 stocks »
*Stock Advisor returns as of September 9, 2024
Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Neil Patel and his clients have no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet and Meta Platforms. The Motley Fool has a disclosure policy.
Is Meta Platforms Stock a Buy Now? was originally published by The Motley Fool
Read the full article here