There are no real secrets to successful investing. If you buy a diverse portfolio of stocks, you're already ahead of the game, but some investors will tell you it's equally important to "let your winners run." It means that when a stock is working (for the right reasons), you should let it run its course.

Investors who have owned Facebook (META -1.80%) since its initial public offering have received an 856% return, and they might be wondering how much further it can go. The company is now worth over $1 trillion, and it's one of just five companies that have reached that valuation milestone. 

But not only is Facebook likely to keep running, I also think it's also a buy for investors who don't own it yet. Here's why.

A person using a virtual reality headset while sitting in a cafe

Image source: Getty Images

It never stops innovating

Technology companies need to be light on their feet, which can be hard if you're Facebook, with over 63,000 employees and almost 3 billion monthly users. If tech companies become complacent, they can be quickly surpassed and rendered obsolete. It's a fate that befell old tech darlings like AOL and MySpace. 

But Facebook is a company that likes to lead. Right now, some estimates suggest 10,000 of its employees are working in the Reality Labs segment of the business, which focuses on developing tools to power virtual and augmented reality.

This is a topic CEO Mark Zuckerberg discussed at length on the July 28 second-quarter earnings call. Facebook has a clear focus for the future: the metaverse. It's what the company envisions will be the new version of the internet, where people will meet digitally in "spaces," much like they do in the real world.

For anyone who has played online games such as The Sims, picture that -- except imagine being inside the playing experience, perhaps much like the movie Avatar portrays. Facebook thinks it can help build an entire digital economy inside the metaverse, where users can "teleport" to different augmented experiences and transport their inventories with them. 

The main hurdle is creating a feeling of presence. It needs to actually feel like a version of reality to work, otherwise it might amount to nothing more than a gaming experience. Facebook acknowledges it will take a global collaborative effort from tech hardware and software companies to make this happen. It's not a job for Facebook alone, although it indicates it will be spending billions per year on research and development. 

It just keeps growing

Like most tech stocks, Facebook used to get attention for its user growth and innovative new products. (Remember when it acquired Instagram and WhatsApp?) But now it's a cash generating machine that investors buy for its earnings, so the stock has graduated from a speculative investment to an essential part of many portfolios.

Metric

2018

2019

2020

2021 (Estimate)

CAGR

Revenue

$55.8 billion

$70.6 billion

$85.9 billion

$119.2 billion

28.7%

EPS

$7.65

$6.48

$10.22

$14.08

22.5%

Data source: company filings. Estimates provided by Yahoo! Finance. CAGR = compound annual growth rate.

Facebook saw an acceleration in revenue growth between 2019 and this year, and that's probably attributable to the pandemic-driven stay-at-home economy. Consumers had much more time to spend in front of their screens during lockdowns, but so far in 2021, the growth doesn't appear to be slowing. 

Investors usually price a profitable company based on its earnings per share. Facebook trades at a forward price-to-earnings multiple of 25, based on expected 2021 earnings of $14.08 and a share price of $359. That's much cheaper than the 35 times earnings of the broader Nasdaq 100 index, which Facebook is a part of.

If the company continues to grow earnings at 22.5% each year, that means the stock should double every three and a half years, assuming the multiple of 25 remains consistent. So on an earnings basis, there's a really compelling case for owning the stock. 

But there's no telling how much financial performance might come from new businesses derived from the metaverse. If Facebook takes an early leadership position, investors might pay a premium for the stock to capture future growth. 

Why it's a buy right now

Many technology companies have backed themselves to change the world before, but these big pivots sometimes come when they're hunting for a new market after their core business begins slowing.

Facebook is attacking new innovations like the metaverse from a position of strength. Its business is firing on all cylinders, and it generates enough capital to commit to these big leaps forward.

What might an entire digital world be worth? Well, Facebook is using the same strategy it always has: Make the product accessible so it can acquire as many users as possible. The company has indicated it's not looking to make large amounts of money selling hardware, but is instead focused on creating the digital ecosystem to host hundreds of millions of users.

As it did with its social network, it will worry about monetizing them later. Except that this could be much, much bigger.