Meta Platforms: Ultimate Value Stock With Its Cheapest Valuation In Years

Meta Platforms: Ultimate Value Stock With Its Cheapest Valuation In Years

Kelly Sullivan/Getty Images Entertainment The whole point of investing is to generate a return on your capital. It doesn’t matter if you’re buying a Pizzeria, Laundromat, rental property, apartment building, or equity in the form of stock. Investors look at buying stocks in publicly traded companies differently than if they were to buy a small business or rental property. Investors are all too eager to purchase shares of companies that have growing revenues with expanded losses in the name of growth. As an investor, would you buy a rental property that didn’t have positive free cash flow (FCF) or a business that didn’t operate in the black? If you were looking at a business that was operating in the red, how much of a discount would you need to buy it at, knowing that you would need to allocate capital and time to make it a positive cash flow vehicle? Somewhere along the way, many investors in the stock market stopped looking at the financials of companies and made investment decisions based on two things, revenue growth and price to sales ratios.

The stock of Meta Platforms ( FB ) has seen better days as its share price has declined -44.58% in 2022. The interesting aspect is that the investment community couldn’t get enough of FB in the $300s, now investors are dumping their positions as if shares have been cursed. The only thing that has changed is public perception, as the underlying fundamentals have only gotten stronger. The current sell-off paints a drastic picture that FB is in financial danger, and this couldn’t be further from the truth. Every investment is the present value of future cash flow, and today, shares of FB trade at a cheaper valuation than they did in 2016. I believe FB is declining because investors are worried about their user growth decelerating which is a ridiculous aspect to be concerned about. FB had 3.59 billion users in Q4 of 2021, which is 45.25% of the global population. Mark Zuckerberg came on conference calls time and time again, indicating that user growth would stop at some point. Investors should stop look at the core business metrics and the financials before making decisions. Today’s shares of FB have declined to a point where they are cheaper than in 2016 from a valuation standpoint. Facebook Meta Platforms is now trading at a cheaper valuation than it did in 2016

Hypothetically, if I asked you in January if you had the opportunity to go back in time to 2016 and invest in FB, what would your answer have been? On January 31st, FB traded at $313.26. Looking back in time, FB was trading at $112.18 on March 16th, 2016. Of course, your answer would have been yes. Your investment would have grown substantially, and FB would have increased its revenue from $27.64 billion to $117.93 billion. FB’s net income would have increased from $10.22 billion to $39.37 billion, and its FCF would have increased from $11.62 billion to $39.12 billion.

From a numbers aspect, FB represents everything you want in an investment, and they did it on a large scale. FB’s revenue grew 326.66% ($90.29 billion) over the past five years, while net income grew by 285.23% ($29.15 billion), and their FCF grew by 236.61% ($27.5 billion). Does this look like a company that is in any financial trouble or a company that can’t continue to grow? FB hasn’t delivered a bad quarter from a financial standpoint, and in 2022 shares have declined by -44.58%. Going back to the basics of an investment, you’re buying an equity share of a company’s ability to generate profits and cash flow. FCF is one of the most important profitability metrics to judge a company because FCF is where a company can pay down its debt while also utilizing it to make acquisitions, buy back shares, or pay a dividend.

FB finished 2016 generating $11.62 billion in FCF, and there were 2.89 billion shares outstanding. On 12/29/16, shares of FB traded at $116.35, placing its market cap at $336.25 billion. Investors were gobbling up shares left and right at a price to FCF ratio of 28.95x. The investment community was more than willing to pay this multiple for FB’s FCF. Seeking Alpha / Steven FIorillo At the end of 2016, investors were willing to pay a multiple of 28.94x for FB’s FCF. This multiple was 24.36x FCF at the end of 2018, and at the end of 2020, investors were paying 32.76x FB’s […]

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