Meta Platforms (NASDAQ: META) is up nearly 2,000% since its 2012 IPO, but for all its success, it’s been a hated stock much of the way.
Throughout its history, the company has been saddled with scandals, boycotts, billion-dollar fines, and antitrust attacks. It’s been derided for strategic decisions like its metaverse push and criticized for the addictive nature of its product.
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Despite all that, Meta has rewarded investors with monster gains. The stock is up 577% over the last ten years, as the chart below shows.
Meta’s strengths were on display in its latest earnings report, which sent shares up 10.4% on Thursday.
Revenue jumped 24% to $59.9 billion, and margins narrowed as it ramped up spending on infrastructure and other areas, though operating income still rose 6% to $24.7 billion.
Management also pleased investors with its guidance, calling for revenue of $53.5 billion-$56.5 billion in the first quarter, implying revenue growth of 30%, which would be its fastest growth rate in five years. CFO Susan Li credited its AI-driven investments in advertising, which improved targeting and measurement, and it even added a generative AI tool to help advertisers create ads.
Even after jumping 10% on the earnings report, the stock still looks like a bargain.
Image source: Getty Images.
Adjusting for a tax valuation charge from the Big Beautiful Bill, Meta generated $74.7 billion in net income last year, or $29.04 in earnings per share.
Based on that profit figure, the stock currently trades at a price-to-earnings ratio of 25.4, which makes it both cheaper than the S&P 500, which trades at a P/E of 28.1, and any of its “Magnificent Seven” peers.
As you can see, Meta trades at a discount of more than 20% to all of its “Magnificent Seven” peers, according to the numbers above, despite currently growing revenue faster than all of those companies except Nvidia.
Meta has historically traded at a discount, and there’s no other company of its size that has grown as fast as it has, at such a relatively low valuation. The chart below shows its revenue growth rate and P/E ratio over the last eight years.
As you can see, Meta’s P/E ratio has averaged 26 during that period, which is roughly in line with the S&P 500, while its revenue growth has averaged 23%. It would be difficult to find another stock that has grown that fast at such a low for so many years.
The market doesn’t seem to know how to value Meta Platforms, and the same could be said of Alphabet, which, until a recent surge, had traded at a significant discount as well.
These companies have two of the widest economic moats in the world, and the revenue and profit margins to prove it. They’ve made digital advertising a duopoly, yet they’ve been valued like average companies. They’re software companies, yet they trade at a deep discount to software-as-a-service (SaaS) stocks, which are typically valued on a multiple of sales rather than profits.
However, Meta and Alphabet have something more valuable than a subscription enterprise software product. They have platforms that billions of users engage with every day, sometimes for hours at a time, and they’ve developed highly intelligent advertising models around those platforms that mint billions in high-margin profit and have no significant direct competition.
If you own a stock, you typically want to see the valuation go up since that will increase your return.
However, Warren Buffett once argued that we should want the price of a stock to languish so that we could buy more of it and the company could buy back its stock at a good price. Low prices also favor net buyers of stock, allowing you to add your portfolio at a good prices.
Meta’s modest valuation hasn’t kept the stock from delivering outsize returns, and it diminishes the risk of a crash in the stock if the broad market falls.
It’s a good thing for investors for the stock to continue to be misunderstood and undervalued. It will only help fuel its long-term gains.
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Jeremy Bowman has positions in Meta Platforms and Nvidia. The Motley Fool has positions in and recommends Alphabet, Meta Platforms, and Nvidia. The Motley Fool has a disclosure policy.
