Is Meta Platforms Stock a Buy Now?

Meta Platforms (NASDAQ: META) is seeing its shares surge thanks to strong fourth-quarter 2023 financial results. Revenue in the last three months of the year totaled $40.1 billion, good for a 25% year-over-year gain. Diluted earnings per share (EPS) of $5.33 was up a whopping 203%.

Looking at these headline numbers, which both crushed Wall Street estimates, it’s no wonder Meta stock climbed 20% the day immediately following the announcement. The market is once again excited about this business.

Is it time for you to buy this top FAANG stock now?

One of the best businesses ever

As of Dec. 31, Meta counted a ridiculous 3.98 billion monthly active users across its family of apps, which includes Facebook, Instagram, WhatsApp, Messenger, and Threads. This figure was up 6% versus the prior-year period, showing that the business can still expand on a gargantuan base.

Besides making Meta a leader in digital advertising, an industry that is starting to pick up steam again, all of these users have resulted in strong network effects. Even better, Meta doesn’t need to produce any content itself. Its users are both creators and consumers. And the larger the platform becomes, the more powerful it gets.

This makes Meta one of the best businesses on the face of the planet. There are competing social networks out there, but none of them have the scale that Meta does. After all, people want to be a part of communities where everyone else is. And this is Meta. This gives me confidence that the threat of disruption is extremely low.

Massive scale and network effects have made the social media specialist a financial juggernaut. Meta’s apps division produced a stellar operating margin of 54% in Q4, a marked improvement compared to the fourth quarter of 2022. A 13% reduction in expenses, primarily due to lower restructuring charges, drove the higher profitability.

But Meta will continue to aggressively invest in its metaverse ambitions, which reported an operating loss of $16.1 billion last year. “For Reality Labs, we expect operating losses to increase meaningfully year over year due to our ongoing product development efforts in AR/VR and our investments to further scale our ecosystem,” CFO Susan Li said on the Q4 2023earnings call

Not a bargain anymore

From its previous all-time high in September 2021 to its November 2022 low, Meta’s stock tanked 77%. Macro headwinds, a softer ad market, and reduced enthusiasm for tech companies propelled this downward spiral. It’s wild to think that shares were once trading at a dirt cheap price-to-earnings (P/E) ratio of 8.5.

Since that low in late 2022 to Feb. 2, shares have skyrocketed 434%. Meta is now at a fresh all-time high. It’s no surprise the stock isn’t attractively priced anymore. The P/E multiple of 32 demonstrates this new reality, and shares sell for a premium to the Nasdaq-100 index. It’s obvious now that expectations are elevated — at least much more than they were about 16 months ago.

Consensus analyst estimates call for diluted EPS to increase at a compound annual rate of 18.9% between 2023 and 2026. Of course, investors should always take forecasts with a grain of salt, but that shows you the strong growth potential this business still has.

However, I don’t see any margin of safety at the current valuation. In fact, there’s a good possibility that Meta’s stock will revert to its trailing-five-year P/E multiple of 26, introducing an unfavorable headwind to generating market-beating returns. So, I’m sitting on the sidelines for now until there’s a better entry point to scoop up shares of this dominant enterprise.

Should you invest $1,000 in Meta Platforms right now?

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Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. Neil Patel and his clients have no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Meta Platforms. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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