Shares of Meta Platforms (META -0.62%) jumped 3% through 2:55 p.m. ET Wednesday afternoon.
You can thank J.P. Morgan for that.
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What J.P. Morgan said about Meta today
Investment bank J.P. Morgan raised its price target on Meta stock 9% this morning, to $735 a share, with an overweight rating, reports Street Insider. According to the analyst, Meta boasts "virtual ownership of the social graph," as well as a "strong competitive moat" that will keep it "an enduring blue chip company ... for the long term."
The company's combination of scale, growth, and profitability combine to create network effects that no other social media company can match, argues the analyst, "and its targeting abilities provide significant value to advertisers." And while Meta's ill-fated decision to rename itself after the metaverse seems to have failed, the company's still got a chance of capitalizing on demand for artificial intelligence services as a new growth driver -- if, that is to say, Meta can catch up with Google and OpenAI.
Is Meta stock a buy?
It's hard to argue with any of the above points -- so I won't. Instead, I'll focus on the critical problem with Meta stock that J.P. Morgan seemed to deemphasize: the stock's high price relative to its growth prospects.
Priced north of 26 times trailing earnings, and with a price-to-free-cash-flow ratio even richer -- more than 30 times -- Meta stock simply costs too much for the 14% long-term earnings growth rate that Wall Street projects for it over the next five years.
While it's certainly possible Meta will outperform expectations and grow faster, at $1.7 trillion in market cap, Meta is pretty gigantic already. One of these days, the law of large numbers is going to catch up to it -- and Meta stock will fall.
