Meta Fundamentals Have Improved But Look Stretched at Current Price

  • FB.us
    (${instrument.percentChange}%)

Facebook announced on 28 October that it had changed its name to Meta Platforms. Please note that the stock ticker will change from FB to MVRS, effective 1 December. The company is currently trading at a PE of 24.4. This is lower than the Nasdaq multiple of 36.08.


Past Performance: Past Performance is not an indicator of future results.

The histogram denotes the company's ROIC (calculated using NOPAT, net PP&E and working capital elements).


Past Performance: Past Performance is not an indicator of future results.


Source: www.tradingview.com

Our calculated ROIC for the fiscal year 2017 is an impressive 87%. Area 1 is the area of the company's price chart that aligns with this ROIC. The stock price appreciated by near 52% during this time period. However, the ROIC dropped over the next 2 years; as does FB's revenue growth (orange line). This period aligns with area 2 in the company's price chart. It is a volatile period, and although 2018 was a down year, area 2 manages to gain about 11%.

Area 3 includes the pandemic period. FB's ROIC improved and revenue growth picked up. We note that the last histogram period is a forecast based on the "trailing twelve months." Nevertheless, we do anticipate an improved ROIC and revenue growth for this period. If correct, this suggests that Meta may be in a position to build future economic value for its shareholders.

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However, current price levels may be too expensive. Including the forecasted TTM results, the average growth rate in the free cash flow over the past 5 years has been about 22%. The mean stock appreciation per annum for the same period is close to 27%. Using the TTM's FCF, applying the 22% growth and using a 27% required rate of return, the terminal value is $873.72bn, against a market cap $948.61bn. This suggests Meta stock may be stretched at current levels. Considered with the anticipated improvement in ROIC and revenue growth, pullbacks may very well be compelling and supported by market particpants.

Additional sources:
https://finance.yahoo.com/quote/FB/financials?p=FB

Russell Shor

Senior Market Specialist

Russell Shor joined FXCM in October 2017 as a Senior Market Specialist. He is a certified FMVA® and has an Honours Degree in Economics from the University of South Africa. Russell is a full member of the Society of Technical Analysts in the United Kingdom. With over 20 years of financial markets experience, his analysis is of a high standard and quality.

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