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Mark Zuckerberg-owned Meta Platforms (META) has been making waves lately, thanks in part to the launch of Threads - a text-based version of Meta’s photo-sharing app Instagram. However, after onboarding tens of millions of users initially, growth has tapered off.
Of course, the Facebook parent company has expanded well beyond social media in recent years, as highlighted at the conclusion of its annual Meta Connect developers conference. While unveiling its newest virtual reality (VR) headset - the Meta Quest 3 - and announcing a set of smart glasses in collaboration with Ray-Ban, Meta's reveal in the artificial intelligence (AI) space grabbed particular attention. The company unveiled its own AI assistant, Jarvis, along with a number of AI characters based on celebrities like Snoop Dogg, Paris Hilton, and Mr. Beast, among others.
And it's not just the prospect of AI-fueled growth that has investors excited. In the second quarter, Meta's revenues came in at $32 billion, up 11% from the prior year on strength in its core advertising revenues. EPS for the quarter came in at $2.98, up 10% from the year-ago period and above the consensus estimate of $0.91.
Although long-term debt almost doubled from the previous year to $18.4 billion, that was somewhat offset by 42% yearly growth in operating cash flows. In fact, free cash flow more than doubled from the previous year to $11 billion.
Against this backdrop, Meta stock is up a whopping 149.5% on a YTD basis, comfortably outperforming the Nasdaq Composite's ($NASX) rise of about 26% over the same period.
But is it too late to buy into the stock's rally? Here are three reasons to believe META's outperformance is set to continue.
1. Analysts Are Upbeat, with Strong Earnings Estimates
After that blowout second-quarter performance, analysts are projecting robust earnings growth for META going forward, too. For the current quarter, the consensus is calling for earnings growth of 115.2%, followed by 51% in the next quarter.
On average, analysts tracking Meta stock have assigned a “Strong Buy” rating, with a mean target price of $361.51. This indicates an upside potential of about 20.4% from current levels - while the Street-high target price of $435 implies expected upside of nearly 45%.
Out of 38 analysts covering the stock, 34 have a “Strong Buy” rating, 2 have a “Moderate Buy” rating, 1 has a “Hold” rating, and 1 lone contrarian has a “Strong Sell” rating.
2. META is Reasonably Priced for Growth
Considering Meta's massive year-to-date rally and its expected growth forecast, the company's shares appear to be attractively valued at current multiples. The trailing 12-month price/earnings (p/e) ratio of 28.33 is in line with other FAANG rivals like Alphabet (GOOGL) at 27.66, Microsoft (MSFT) at 31.88, and Apple (AAPL) at 28.64.
Plus, the stock is trading at a forward PEG of 1.03, which is below the sector median of 1.72 and META's own 5-year average of 1.51.
Likewise, META's forward ev/sales ratio of 5.78, price/sales of 5.91, and price/cash flow of 14.22 are all below Meta's own 5-year averages for these metrics.
Looking ahead, Meta is expected to grow revenue at a per-annum pace of 31.83% over the next five years, compared to a forecast of 8.5% for the S&P 500 Index ($SPX).
3. Technical Outperformance
And of course, the share price of Meta has been strong technically. Along with its standout year-to-date gain, the stock held up incredibly well amid the market's bout of September volatility. In fact, META added 1.5% on the month, while the broader Nasdaq Composite shed 5.8%.
The stock has been consolidating in the range of $300 for some time, and a breakout from these levels could carry the stock back up to its recent highs of around $325, in a repeat of the rally from this area that took place earlier this year.
Final Takeaway
All things considered, Meta stock seems to be ripe for a continued move higher. Along with its impressive relative strength during the stock market's September sell-off, investors should take note of META's attractive valuations relative to its FAANG peers (and its own historical levels), along with the compelling prospects for robust earnings and revenue growth in the quarters ahead.
On the date of publication, Pathikrit Bose did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
