With rapid interest rate hikes, signs the near-term macroeconomic climate could continue to be turbulent, and inflation running hot over the last year, the market has turned cold on growth stocks. The Nasdaq Composite index remains down approximately 30% from its peak despite enjoying a solid rally early in 2023. Many smaller growth stocks have seen precipitous valuation crashes, and even comparatively stable big tech companies have come up against powerful business and valuation headwinds.

No doubt about it, trading for the broader market could continue to be bumpy in the near term, but the biggest money tends to be made by those who treat market pullbacks as opportunities to build positions in promising companies. With that in mind, read on for a look at one category-leading tech giant that's presenting an attractive risk-reward proposition at today's prices.

Neon 2023 and upward-pointing arrows with a hand in the background with a finger pointing up.

Image source: Getty Images.

This underestimated social media giant looks cheap

With economic performance and forward indicators weakening along some key lines, the last year has been tough for the digital ads industry, and many advertisers have cut back on spending. Adding another layer of complications, Apple instituted no data-tracking policies for apps on its highly important iOS mobile operating system. Facing these challenges, social media giant Meta Platforms (META 0.27%) has been up against a bevy of pressures recently. But investors shouldn't underestimate the company.

Daily active users (DAUs) for Meta's Facebook platform, already near a saturation point, ticked up sequentially and year over year in Meta's fourth quarter. Monthly active users (MAUs) also rose on sequential and year-over-year bases.

Across Facebook, Instagram, WhatsApp, and other services, Meta ended Q4 with 2.96 billion DAUs -- up 5% annually -- and MAUs across services was up 4% year over year to 3.74 billion. However, Facebook's average revenue per user (ARPU) declined by roughly 6% to $10.86.

Amid these trends, revenue declined roughly 4% year over year to $32.17 billion in Q4 and 1% for the full year to $116.61 billion. Were it not for adverse currency impacts, sales actually would have been up 2% and 4%, respectively. While Meta's performance last year fell far short of what most investors would expect from a "growth stock," the business mostly held its ground against a slew of pressures, and the stock continues to trade in value territory.

Despite rallying 51% year to date, the social media leader's stock is still down approximately 52% from its high and looks cheaply valued for long-term investors.

META PS Ratio (Forward) Chart

META PS Ratio (Forward) data by YCharts. PS Ratio = price-to-sales ratio. PE Ratio = price-to-earnings ratio.

Even with macroeconomic pressures and other challenges depressing the company's earnings this year and its share price surging on better-than-expected Q4 results, Meta trades at under 20 times expected annual profit and four times expected sales.

Despite the various pressures at hand, Meta managed to post an operating income margin of 20% in Q4. That's down substantially from the 37% operating margin it posted in the prior-year quarter, but it's enough to have the business posting significant profits. And there are reasons to believe the business can bounce back to posting stronger margins.

Efficiency pushes and opportunities in AI and the metaverse

CEO Mark Zuckerberg has dubbed 2023 Meta's "year of efficiency," and the company will likely continue carrying out cost-saving initiatives on multiple fronts to boost overall profitability. In addition to measures on that front, the overall digital ads industry should eventually see significant recovery, and the business will have opportunities to score wins with its artificial intelligence (AI) technologies.

Thanks to the company's vast technology resources and the huge breadth of data it has access to, there's a good chance that Meta could be one of the major beneficiaries of the AI revolution. And it shouldn't take long for the benefits to start to materialize.

Across the company's core Facebook and Instagram services, this means shifting to more content recommended by the company's AI systems, driving more efficient monetization, and promoting engagement for the short-form Reels video feature. Further down the line, AI will likely play a key role in making the company's metaverse vision a reality.

While metaverse projects will continue to be sizable net-cash burners for the foreseeable future, there's still a lot of promise in the space. And the market appears to be pricing in little possibility that Meta can score breakthroughs in the field. The outlook admittedly remains speculative on that front. Still, the company remains solidly profitable and is financially strong, ending the year with cash and short-term equivalents totaling $40.74 billion against long-term debt of $9.92 billion.

With the core business still looking solid despite intense pressures, underappreciated potential for success in the metaverse, and shares trading at multiples that leave room for big upside, Meta stock continues to look significantly undervalued.