Sometimes, investing questions have no perfect answer. Shares of Meta Platforms (META -0.28%), the social media giant that owns Facebook, Instagram, and WhatsApp, have risen a staggering 328% since late 2022. Do investors who rode most of this exhilarating ride sell and take their profits?
At first glance, "duh" might be the correct answer. Gaining over 300% would take years in the broader stock market. There's nothing wrong with doing just that. However, there is a strong argument that Meta's stock still has some mojo left. Perhaps it can continue building on its epic run.
Let's look at the evidence and see if investors have enough in hand to make the right call. There's also an alternative worth considering.
A lesson in market sentiment
What Meta Platforms has gone through over the past three years is a testament to the power and impact of market sentiment. From 2021 to late 2022, Wall Street began turning sour on the social media giant.
Why? CEO Mark Zuckerberg was spending tens of billions of dollars on his new Reality Labs segment. Meanwhile, iOS privacy updates hurt how effectively Meta's ads could work on Apple devices. The stock cratered from nearly $400 per share to under $90.
At the time, the news headlines and social media posts were saying things like, "Mark Zuckerberg doesn't know what he's doing." The criticisms were being directed at the same guy who bought Instagram for $1 billion and turned it into something arguably worth more than 100 times that today.
But a funny thing happened. Meta began adapting to the iOS changes. Zuckerberg ordered up some cost-cutting to restore Meta's free cash flow and put growth back on track while balancing continued investments in Reality Labs and artificial intelligence (AI).
Just about every long-term investor is going to face some adversity. Almost no company can grow for decades without some volatility, and maybe even a huge drop. Sometimes, these companies never get it together, but sometimes they do. Those who stick with it are rewarded handsomely.
The real takeaway for investors here? Look for broken stocks, not broken companies. Meta's core app business grew its user base through all the turmoil. That intact core cog in the Meta machine made its rebound as simple as Zuckerberg making the company more efficient last year.
Why shareholders might not want to sell Meta platforms
Now that Wall Street has realized that Meta's business isn't broken after all, analysts have returned to expecting roughly 20% annual earnings growth from the stock. Today, Meta trades at a forward P/E of 22, which means its resulting PEG ratio of 1.1 signals the stock is a good value for the growth you might get.
Based on its fundamentals, the stock is still a good deal despite its share price soaring from $89 to nearly $400 in 15 months.
META EPS LT Growth Estimates data by YCharts
It's natural for people to think that since the stock blasted off, it must be expensive. It's the opposite of thinking a stock is cheap because the price keeps decreasing. Ultimately, it's a company's fundamentals, its underlying business performance, that tell investors whether a stock is attractive.
This might be the best of both worlds
If you bought Meta Platforms in late 2022, you are sitting on substantial investment returns. Do you sell and cash out? Remember, stocks are volatile, so even though Meta's future still looks bright, that doesn't mean the market won't throw in a curveball and mess up your unrealized gains (they're paper profits until you sell).
Selling some, but not all, of your Meta shares could be the best of both worlds. Suppose your investment grew from $1,000 to over $4,000 over the past 18 months. If you sell half, that's enough to double your money. Even if Meta collapsed and the other half went to zero, you still made out very well.
Locking in some gains and leaving the rest ensures that you've had a successful investment while leaving room for upside if Meta continues to grow and compound more investment returns.
