Meta Platforms Is Up 40% This Year. Here’s Why It’s Still a Fantastic Buy

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    The average rate of return is S&P500 In the long run, it's about 10% per year. Therefore, investors often immediately raise a red flag if a stock makes a return of more than 40% within a year. Some sell, others refuse to buy, but looking only at the stock's return is a terrible way to judge whether it's a buy or not.

    If you do, you'll miss out on the market's biggest winners. Nvidia and super microcomputer We have had great results since the beginning of 2023. But if you sell when it's up 40%, you're missing out on big gains that could change your portfolio.

    meta platform (NASDAQ:Meta) I'm on this ship too. The stock is up 40% in 2024 and more than 300% since early 2023. However, despite its success, I believe there is still room for further growth.

    Meta's advertising business keeps the lights on

    Meta Platforms is probably better known by its older name, Facebook. The company's main business is advertising, which is done through a family of apps including Facebook, Instagram, WhatsApp, Messenger, and Threads. In 2022, the stock price crashed as it was wasting cash by investing heavily in its Reality Lab division, which focuses on next-generation technologies such as augmented reality (AR), virtual reality, and the Metaverse.

    At the time, these were primarily high-end gaming technologies that didn't really serve any purpose. But with the rise of artificial intelligence (AI), CEO Mark Zuckerberg's vision is becoming a little clearer.

    Meta is working on an innovative AI called Ego that will eventually be integrated into AR glasses. This could be used for tasks like teaching people how to cook or communicating with people who don't speak the same language as us.

    If this effort is successful, Meta's stock could be an absolute rocket and could easily add billions of dollars in sales.

    However, because the moonshot division is engaged in product development, the advertising business is performing steadily. In the fourth quarter, Meta posted record ad sales, with revenue of $38.7 billion (up 24% year-over-year).If your meta conversion is 54% Convert that revenue to operating profit, it's an incredible cash generating machine. The Reality Labs division spent his $4.6 billion of its profits on achieving his goals, but investors were still left with his incredible $16.4 billion (41% operating margin). remain.

    META operating income (quarterly) graph

    META operating income (quarterly) graph

    These gains add to Meta's cash reserves, which totaled approximately $65.4 billion at the end of the fourth quarter. With just $18.4 billion in long-term debt on its balance sheet, it has plenty of cash on hand to do whatever it wants.

    So Meta decided to pay dividends. If he held the stock on February 22nd, he is entitled to a dividend of $0.50 per share, paid on March 26th. The dividend yield is 0.4%, which is not much. But good dividend companies always have to start somewhere, and a dividend is better than none.

    All these facts reflect Meta's previous results, which are impressive. But why is the stock being bought now?

    Stocks are traded at fair prices

    Looking at Meta's forward price/earnings ratio (PER), it is trading at approximately 25 times expected earnings. That's not cheap, but it's not a bad price for a company that's on the cutting edge of AI technology and is growing its revenue at a 25% pace.

    Additionally, compared to other large tech stocks, apple and Microsoft, Because it's not growing as fast and trading at a higher premium, Meta's stock looks fairly priced.

    Meta is an AI giant with a successful social media product. Meta growth is just beginning and it would be unwise for investors to sell now. In fact, I think they can now confidently buy the stock in anticipation of that. It will rise further in 3 to 5 years..

    Should you invest $1,000 in Metaplatform now?

    Before purchasing Metaplatform stock, consider the following:

    of Motley Fool Stock Advisor Our analyst team has identified what they believe Best 10 stocks What investors can buy right now…and the Meta platform wasn't among them. These 10 stocks have the potential to generate impressive returns over the next few years.

    stock advisor We provide investors with an easy-to-understand blueprint for success, including guidance on portfolio construction, regular updates from analysts, and two new stocks every month.of stock advisor Since 2002, the service has more than tripled S&P 500 returns*.

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    Randi Zuckerberg is a former Facebook head of market development and spokesperson, sister of Meta Platforms CEO Mark Zuckerberg, and a member of the Motley Fool's board of directors. Keesen Drury I have a position on Metaplatform. The Motley Fool owns a position in and recommends Meta Platform. The Motley Fool has Disclosure policy.

    Metaplatform is up 40% this year.Here's why it's still a great buy Originally published by The Motley Fool


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