Metaplatforms(NASDAQ: META) is without a doubt a leader in the technology and internet industry. It’s been a monstrous success story and a company that has done a great job of rewarding its long-time shareholders, something that continues to be the case lately.
As I write this, this social media stock has increased by almost 400% in the past two years. This means that a $10,000 investment made 24 months ago would be worth almost $50,000 today. That gain is hard to beat.
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But should you buy Meta stock now?
Meta stocks took a hit in 2022, along with the rest of the market. That year, the company posted a surprising 1% year-over-year sales decline, which came after years of massive double-digit sales increases. When the Federal Reserve began raising rates aggressively to combat rising inflation, advertisers pulled back their spending, negatively impacting Meta.
That same year, from the company operating margin came to 25%. This was down from 40% in 2021. Meta’s costs were up 23% as it focused on restructuring efforts. Shareholders were clearly unhappy at the time, as shares fell 64% in 2022.
But today the company is in much better shape. Sales rose 16% before rising 22% in the first nine months of this year. Furthermore, profitability has improved, with Meta reporting a stellar 43% operating margin in Q3 2024.
The management team is so optimistic about the position the company is in that they finally gave the go-ahead dividend payments in May this year. Meta received its first-ever quarterly payout of $0.50 per share in June. Considering the company generated $15.5 billion in free cash flow over the last three months, there is plenty of capital for dividends and significant share buybacks.
There has not been a more exciting topic in the business and investment world than that of artificial intelligence (AI). Over the past few years, we’ve seen executives shift their strategies – sometimes radically – to focus more on AI initiatives. Moreover, investors have been attracted to stocks exposed to this technological trend.
Like a giant company with $1.4 trillion in revenue market capitalization and nearly 3.3 billion daily active users among the various social media platforms, it makes sense that Meta is already a top player in the AI tree. The company’s Meta AI assistant already has 500 million monthly active users. And thanks to AI-powered recommendations, users are spending more time on Facebook and Instagram.
This makes it more attractive for advertisers who want to target a captive audience. “More than a million advertisers used our GenAI tools to create more than 15 million ads last month,” CEO Mark Zuckerberg said during the Q3 2024 earnings call.
Meta plans to invest 38 to 40 billion dollars in this capital expenditure this year to strengthen its network infrastructure. And that figure is expected to increase significantly by 2025.
Exactly two years ago, Meta’s shares were trading at a price of price-earnings ratio (P/E) ratio of 10.6. In retrospect, that valuation made buying the stock seem like an absolute no-brainer opportunity. That was of course true, given how much the stock price has risen since then.
Investors looking to buy this dominant company now should feel comfortable paying a higher valuation. The stock trades at a price-to-earnings ratio of 26.2. The S&P500 trades for a price-to-earnings ratio of 25.7, so Meta is in the same ballpark as the average stock.
However, anyone could easily argue that this is a superior company that deserves at least that kind of appreciation. To be clear, stocks are not as cheap as they were a few years ago. But for investors looking to add a dominant Internet company to their portfolio, it might be smart to pay to own Meta.
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*Stock Advisor returns November 18, 2024
Randi Zuckerberg, former director of market development and spokeswoman for Facebook and sister of Mark Zuckerberg, CEO of Meta Platforms, is a member of The Motley Fool’s board of directors. Neil Patel and his clients have no positions in the stocks mentioned. The Motley Fool holds positions in and recommends Meta Platforms. The Motley Fool has a disclosure policy.
Metaplatforms are up 400% in the last two years: should you buy this unstoppable stock now? was originally published by The Motley Fool
