Throughout most of its life as a public company, meta pads (dead 1.04%) (formerly Facebook) was one of the largest stocks investors could own. However, since changing its name to Meta Platforms, its stock has fallen 53% and fallen into value investing territory.
I’m not implying that the name change had anything to do with diving. But, the business model change associated with the name change can be blamed. With Meta pushing all of its chips into the metaverse pot, investors haven’t performed well.
Earnings are falling, but the stock price is falling faster
To illustrate the declining Meta earnings, let’s take a look at the 12 plus months earnings per share (EPS) Schedule.
With Meta inches approaching a full year of being known by its new name and going all-out in the metaverse, EPS has suffered greatly. In turn, the Price to Earnings (P/E) The ratio decreased due to the drop in the share price. Note: Even though Meta’s earnings (the denominator in the P/E ratio) have fallen, their stock price has fallen faster, causing the P/E ratio to drop faster than earnings.
You are reading this chart correctly. Meta trades for 13.5 times cheap profit. For comparison, this rating is lower than industrial companies such as Larva (14.8) or 15:00 (17.4). Moreover, it is much less than Standard & Poor’s 500The P/E ratio is 20.
It’s no secret that Meta stock is ridiculously cheap, even with earnings dropping. But is Meta a good buy? Or are the investors buying this trying to catch a falling knife?
Stuck in economic headwinds
There’s good reason for Meta’s stock price to drop, in large part due to disappointing quarterly results.
Meta revenue decreased 1% in the second quarter to $28.8 billion. The bottom line was even worse, with EPS dropping 32% year over year (YoY) to $2.46.
Losses are mounting due to Meta’s spending on the Reality Labs segment (the metaverse segment lost $2.8 billion during the quarter versus $452 million), but why is total revenue down?
Like many other companies that generate revenue from advertising, the second quarter was challenging.
Because of economic headwinds, companies are cutting costs, and advertising is an easy expense to cut back. To offset this reduction, the Meta ad price is down 14% year over year to increase demand. Lower demand and lower prices aren’t an excellent combination for any company, but that’s what Meta saw in the second quarter.
The third quarter didn’t look any better, as management directed revenue from $26 billion to $28.5 billion. Compared to last year’s third-quarter revenue of $28.3 billion, this quarter could represent a significant decline in both revenue and earnings.
Looking ahead, street analysts expect their revenue to rise 10.8%, but they believe EPS will continue to decline and come in at $9.86, down from the $13.77 forecast for this year.
To sum up, Meta’s revenue is dropping due to a tough advertising environment, and its operating expenses are going up, causing profits to fall – a problem that likely won’t be resolved for at least another two years.
The stock is trading at 16.2 times earnings of 2022 and 14.5 times earnings of 2023, indicating that the stock isn’t as cheap as its twelve-month overdue valuation, but it’s still far from expensive and within Investment value in the region.
Ultimately, it boils down to whether you believe Meta can bring its metaverse aspirations to fruition or create a hardware product that is a hit with consumers. Meta will burn billions of dollars for nothing if you can’t.
While there may be a “better” value stock out there right now, it’s hard to argue against Meta not being included in the list of best value stocks. Once the economic forces affecting advertising are restored, Meta revenue should rise. In addition, the odds of none of the Meta investments being successful is likely to be low, so there is an unaccounted-for revenue stream into the future of Meta.
I think that makes Meta a Choose a strong valueBut investors must be patient.
Randy Zuckerberg, former director of market development and spokesperson for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. Keith Drury He has no position in any of the mentioned shares. Motley Fool has positions at Meta Platforms, Inc. The Motley Fool recommends 3M. Motley Fool has a profile Disclosure Policy.