Meta Platforms (META 2.42%) is up nearly 2,000% since its 2012 IPO, but for all its success, it's been a hated stock much of the way.
Throughout its history, the company has been saddled with scandals, boycotts, billion-dollar fines, and antitrust attacks. It's been derided for strategic decisions like its metaverse push and criticized for the addictive nature of its product.
Despite all that, Meta has rewarded investors with monster gains. The stock is up 577% over the last ten years, as the chart below shows.
Meta's strengths were on display in its latest earnings report, which sent shares up 10.4% on Thursday.
Revenue jumped 24% to $59.9 billion, and margins narrowed as it ramped up spending on infrastructure and other areas, though operating income still rose 6% to $24.7 billion.
Management also pleased investors with its guidance, calling for revenue of $53.5 billion-$56.5 billion in the first quarter, implying revenue growth of 30%, which would be its fastest growth rate in five years. CFO Susan Li credited its AI-driven investments in advertising, which improved targeting and measurement, and it even added a generative AI tool to help advertisers create ads.
Even after jumping 10% on the earnings report, the stock still looks like a bargain.
Image source: Getty Images.
Meta's deep discount
Adjusting for a tax valuation charge from the Big Beautiful Bill, Meta generated $74.7 billion in net income last year, or $29.04 in earnings per share.
Based on that profit figure, the stock currently trades at a price-to-earnings ratio of 25.4, which makes it both cheaper than the S&P 500, which trades at a P/E of 28.1, and any of its "Magnificent Seven" peers.
NVDA PE Ratio data by YCharts
As you can see, Meta trades at a discount of more than 20% to all of its "Magnificent Seven" peers, according to the numbers above, despite currently growing revenue faster than all of those companies except Nvidia.
The valuation puzzle
Meta has historically traded at a discount, and there's no other company of its size that has grown as fast as it has, at such a relatively low valuation. The chart below shows its revenue growth rate and P/E ratio over the last eight years.
META PE Ratio data by YCharts
As you can see, Meta's P/E ratio has averaged 26 during that period, which is roughly in line with the S&P 500, while its revenue growth has averaged 23%. It would be difficult to find another stock that has grown that fast at such a low for so many years.
The market doesn't seem to know how to value Meta Platforms, and the same could be said of Alphabet, which, until a recent surge, had traded at a significant discount as well.
These companies have two of the widest economic moats in the world, and the revenue and profit margins to prove it. They've made digital advertising a duopoly, yet they've been valued like average companies. They're software companies, yet they trade at a deep discount to software-as-a-service (SaaS) stocks, which are typically valued on a multiple of sales rather than profits.
However, Meta and Alphabet have something more valuable than a subscription enterprise software product. They have platforms that billions of users engage with every day, sometimes for hours at a time, and they've developed highly intelligent advertising models around those platforms that mint billions in high-margin profit and have no significant direct competition.
NASDAQ: META
Key Data Points
The good news for investors
If you own a stock, you typically want to see the valuation go up since that will increase your return.
However, Warren Buffett once argued that we should want the price of a stock to languish so that we could buy more of it and the company could buy back its stock at a good price. Low prices also favor net buyers of stock, allowing you to add your portfolio at a good prices.
Meta's modest valuation hasn't kept the stock from delivering outsize returns, and it diminishes the risk of a crash in the stock if the broad market falls.
It's a good thing for investors for the stock to continue to be misunderstood and undervalued. It will only help fuel its long-term gains.
