Stock Analysis & Ideas

Meta Stock: Compelling Catch-Up Trade amid Rally

Shares of “connectivity” company and metaverse hopeful Meta Platforms (FB) have ricocheted sharply off its bottom just south of $200. With the stock market experiencing such a massive weekly surge, all eyes are back on new highs, even though the risks haven’t changed all that much over the past week.

With the ongoing crisis in Ukraine, lingering “stealth Omicron” COVID concerns, and a suddenly more-hawkish Fed, it may be a shocker to see stocks bounce so quickly.

I’m bullish.

Meta Stock’s Epic Fall

The biggest shocker in markets for 2022 so far, I believe, is the crash in FB stock. Prior to its vicious post-earnings sell-off, a 50% peak-to-trough crash in such an established FAANG stock would have been laughable.

With so much negativity built up in the company over the years, it certainly seemed like many investors were just waiting for a reason to throw in the towel.

Now that Facebook’s DAU (Daily Active Users), a top metric to gauge growth in social-media companies, has shown weakness, the floodgates have opened for sellers waiting to exit.

I think Meta stock is a bargain hiding in plain sight. Yes, there’s baggage with the name, but for the price you’ll pay, it’s tough to complain.

Valuation Reset

Today, the bar ahead of FB stock is unfathomably low, with the stock going for a measly 15.5 times trailing earnings.

Looking ahead, I don’t think it will take much to nudge the stock higher as it looks to prove its doubters wrong come its next round of quarterly results (Q1 2022), currently slated for an April 26 reveal.

That said, many may be inclined to view Meta as a value trap and no longer worthy of the FAANG basket. Even if Facebook misses the mark with underwhelming DAU numbers, there’s a lot to love about Meta’s ability to reinvent itself. It’s still an innovative company, although many skeptics may slam it for being a copycat or a firm keen on anti-competitive acquisitions.

While some M&A moves may have been anti-competitive, I’m not against the “if you can’t beat them, acquire them” mentality, as long as anti-trust regulators stay out of the way. Facebook and Instagram have enjoyed such a dominant position in the social media scene for years.

Making moves to become more monopolistic are a wise idea in my books. With a market cap in the $587-billion range, Meta should hunt for acquisitions to bolster its position in the face of rising threats like TikTok, which seems too distant for Meta to scoop up at this juncture.

In any case, FB stock seems like it ought to be valued in the low-20 times earnings range, not the mid-teens.

Can Facebook, Instagram Draw Younger Crowds?

Facebook has a reputation for being the social media platform of choice for old people.

Some may view such a trend as a failure to keep up with the times, but I view it as the move from young to old as a source of a moat.

Like it or not, the platform is sticky among older audiences who are less likely than the young to shift some of their engagement over to new, more exciting platforms like TikTok.

Meta is also innovating with its metaverse ambitions, NFT collectibles, and other initiatives that could help make its platforms great with younger users again. Instagram is still a staple among younger audiences, and may evolve to become Meta’s bread and butter business if it isn’t already.

Wall Street’s Take

According to TipRanks’ rating consensus, FB stock comes in as a Moderate Buy. Out of 46 analyst ratings, there are 32 Buy recommendations, 13 Hold recommendations, and one Sell recommendation.

The average Meta price target is $325.10, implying 49.6% upside potential. Analyst price targets range from a low of $220 per share to a high of $466 per share.

Bottom Line on Meta Stock

There’s a lot to dislike about Meta after its fourth quarter. However, the valuation and robust long-term fundamentals make Meta stock tough to pass up as stock markets rebound from their first-quarter corrections.

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