Meta Platforms Stock: Value Trap or Screaming Buy?

Meta  (META) – Get Meta Platforms Inc. Report Platforms (formerly Facebook) stock has been hit, down roughly 60% from its all-time high. It certainly hasn’t held up as some of its FAANG peers have.

In fact, there’s a very distinct difference between Apple  (AAPL) – Get Apple Inc. Report and Alphabet  (GOOGL) – Get Alphabet Inc. Report  (GOOG) – Get Alphabet Inc. Report vs. the rest of FAANG. Amazon  (AMZN) – Get Amazon.com Inc. Report and Netflix  (NFLX) – Get Netflix Inc. Report also badly lagging Apple and Alphabet.

Clearly there are the “haves” and the “have-nots” in megacap tech. While Meta may fall into the have-nots column in its stock performance, its financials are another story.

For instance, Meta has the best gross and net margins within FAANG (although it lags Microsoft  (MSFT) – Get Microsoft Corporation Report on net margins if we expand our scope to megacap tech).

Despite analysts expecting 7% revenue growth this year, earnings are forecast to fall almost 15%. The year 2023 is rosier, with forecasts calling for an acceleration in growth, up to 16% for revenue and 18% for earnings.

Of course, the state of the global economy will play a big role in how Meta’s fiscal 2023 will shape up. The situation is quickly becoming a “prove it” situation. That’s as Meta invests heavily in the metaverse, while saying that rising costs will eat into its margins this year.

It would help if Chief Operating Officer Sheryl Sandberg was still there. Of course, Meta could hire from outside, as Alphabet did with Ruth Porat, who was previously with Morgan Stanley  (MS) – Get Morgan Stanley Report and helped ignite momentum within the company. 

At just 13 times this year’s earnings, trailing free cash flow of $39 billion and almost $44 billion in cash and equivalents, Meta clearly shows value here — but is it a trap?

Through Q2 and Q3 of 2021, Meta stock roared higher, gaining more than 50% from the low to the high. It embarked on a somewhat standard correction in the fourth quarter as it entered 2022 near support at $300.

The $300 level held for a while, but it was shattered when Meta reported earnings in February.

The 200-week moving average was temporary support, but quickly turned to resistance in the following weeks. Since then, Meta stock has been consolidating in a falling wedge pattern and is now resolving to the downside.

From a technical perspective, Meta stock is broken. Painful as it may be to see, a test of the covid-19 lows may be in store down near $137. Provided that earnings estimates don’t move, the shares will trade at 11.5 times earnings.

At that price-to-earnings multiple — and given the risk/reward balance near a key level — it will be hard to ignore this opportunity should it arise. 

If the stock doesn’t quite fall that far, the bulls might consider getting long on a move back over $169. More conservative bulls can wait to see whether Meta stock can reclaim $175. Over those levels — and the 10-week moving average — could put $200-plus in play.

The bottom line: As it stands, Meta is a company that’s evolving and that evolution costs money. 

With earnings under pressure ahead of a potential recession and given the unknowns about the metaverse, investors aren’t necessarily wrong to divest the stock. 

But long-term investors may begin to find value soon, particularly if estimates for Meta’s 2023 results are even close to accurate.