Can the Rally Continue for Meta Platforms?

After plunging more than -64% in 2022, shares of Meta Platforms (META) are up +134% this year and are the second-best-performing mega-cap technology stock this year, behind Nvidia (NVDA).  Although Meta Platform’s share price has more than tripled from its 7-1/2 year low in November, its valuation is still reasonable compared to its history and its peers.  Also, analysts project Meta’s revenue will return to growth this year and then accelerate in 2024.

Accuvest Global Advisors believes there is still more upside ahead for Meta Platform’s shares, saying, “It has a very positive revenue trajectory, a very positive cash flow trajectory, the capex plan is more attractive, and it continues to have this great seat in the category.”  While the rally in Meta Platforms was initially fueled by aggressive cost cutting, the focus has turned to the boost to revenue provided by the Reels platform, Meta’s answer to TikTok.

The Reels platform is a big reason Meta Platforms has the potential to attract more advertisers.  Deepwater Asset Management, which owns shares of Meta Platforms, said, “If you’re on Instagram, it’s hard to avoid Reels.”  Deepwater Asset Management expects the video-sharing platform to benefit revenue growth by the fourth quarter as more advertisers are lured toward it.  Also, two ETFs managed by Cathie Wood’s ARK Investment Management bought shares in Meta Platforms this week for the first time since 2021.

The revenue prospects for Meta Platforms are improving.  After the company’s first revenue contraction in 2022, sales are expected to expand by +8% this year and then accelerate by +11% in 2024.  Investors are also attracted to Meta Platform’s reasonable valuation.  Meta’s shares trade at 19 times projected profits, well below its historical average of 26 times and the valuations of other mega-cap technology stocks, including Amazon.com (AMZN), Apple (AAPL), and Microsoft (MSFT).

Most analysts remain bullish on Meta Platforms.  About 80% of the 64 analysts covering Meta Platforms have a buy recommendation on the stock, with only four analysts rating the shares a sell.  Defiance ETFs expect Meta’s gains to continue because of the stock’s momentum and its potential to tap artificial intelligence technologies.  Defiance says, “Innovation and the future of tech this year revolve around AI, machine learning, and technologies like mixed and augmented reality.  When you look at the pool of tech layers with the capacity and balance sheet to benefit from these developments, Meta sure makes that list.” 

On the date of publication, Rich Asplund 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.