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Stock Analysis & Ideas

Meta Platforms: Oversold and Undervalued

Meta Platforms (FB) is the most dominant social media platform in the world. There is a lot of negative sentiment currently surrounding the company.

Despite all the negativity, we are bullish on the stock.

Meta Platforms Engulfed by Negative Sentiment

Meta Platforms has been hammered in 2022. At close to $190 per share, the stock is well off its 52-week high of $384.33. The initial knock that the company received was from the whistleblower controversy that alleged Facebook prioritized engagement.

A lot of misinformation was allowed to flourish on its platforms, leading to a division among populations during the pandemic, and scrutiny from regulators.

The most recent hit was the result of what investors saw from the earnings results. The company beat on revenue but missed on earnings. However, what investors really didn’t like was that Meta’s guidance was lower than expected and that the number of users fell for the first time, losing 500,000 users in Q4 2021 compared to Q3 2021.

The lower-than-expected earnings and guidance can be attributed to two main factors. The first is the result of the changes that Apple has made, which makes it more difficult for advertisers to target consumers effectively. The second factor is inflation. Advertisers have stated that they are reducing their budgets because of rising costs.

Investors are also questioning Zuckerberg’s push into the metaverse, having spent billions of dollars with no material progress yet. Many would prefer to see this money go towards share buybacks.

Lastly, Russia recently announced that it has blocked Facebook after the platform began fact-checking Russian propaganda.

The bottom line is that investors are not thrilled to jump into Meta Platforms, but are they right to avoid the stock?

Growth Catalysts

Although earnings are expected to fall 9% in 2022, according to analysts, investors shouldn’t forget that revenue is expected to grow 12%. This means that it is still growing and maintaining its dominant position. It’s also important to remember that earnings are expected to return to a strong growth of 18% in 2023.

Furthermore, the balance sheet is strong, and margins are very high. Meta still has tens of billions of dollars left on its buyback plan. With the stock price almost cut in half, buybacks will be much more beneficial for shareholders.

The next growth catalyst might sound a little counterintuitive, but we believe that the small loss in users and expected decline in 2022 earnings might actually be a blessing in disguise for the company. This is because Meta can point to this as proof to regulators that it does not have a monopoly in the social media space.

Regulators have been targeting the company for years. These recent developments may actually give the company some breathing room and, in a best-case scenario, open the possibilities for future acquisitions.

Wall Street’s Take

Turning to Wall Street, Meta Platforms has a Moderate Buy consensus rating, based on 31 Buys, 13 Holds, and one Sell rating assigned in the past three months. The average Meta Platforms price target of $326.93 implies 71.8% upside potential.

Analyst price targets range from a low of $220 per share to a high of $466 per share.

Final Thoughts

We believe FB stock has been greatly oversold and that the current valuation puts the company in value territory.

It may also catch a break from regulators due to its less-than-impressive results. As a result, we are bullish on the stock.

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