Meta Trades at a Forward P/E of 17, Below Its 5-Year Average, Making the Stock a Potential Bargain as Zuckerberg’s Net Worth Rebounds

Meta Platforms (META +3.28%) has been parrying some of its year-to-date losses, even as investors expected more from the company’s second-quarter results. Sharp pessimism in the stock has resulted in a valuation that is difficult to ignore.

Facebook’s parent company currently trades at a forward price-to-earnings (P/E) ratio of 17, which is below its five-year average. CEO Mark Zuckerberg and his fellow Meta Platforms shareholders stand to see their wealth grow over time as more people recognize the opportunity.

Image source: Getty Images.

Discussing recent earnings

Meta Platforms continues to gain market share in the online advertising industry while maintaining high margins. Revenue was up 28% year over year, while net income dipped 14% year over year; the company still closed out the quarter with a 26% net profit margin.

Today’s Change

(3.28%) $17.68

Current Price

$556.71

Key Data Points

Market Cap

$1.4TMarket cap calculated using publicly traded shares outstanding only. Does not include unlisted, private, or dual-class non-traded shares. Implied market cap may vary.

Day’s Range

$540.22 – $558.33

52wk Range

$520.26 – $796.25

Volume

24.3M

Avg Vol

18.2M

Gross Margin

81.75%

Dividend Yield

0.38%

Meta Platforms has a vast customer base that knows no equal. It has 3.6 billion daily active users across its social media platforms, up 3% year over year. This user base can make it easier for Meta Platforms to launch new products and services and make them mainstream.

AI glasses and models can introduce new revenue streams, so Meta Platforms isn’t completely dependent on advertising. The company also teased a neocloud segment that remains in early development.

The company is still losing money from its AI efforts. Reality Labs had a $4.6 billion net operating loss in Q2. Its revenue came in at $431 million, up 16.5% year over year.

Explaining the disconnect

It’s not every day that Meta Platforms trades at a forward P/E ratio that is below its five-year average of 24.5. Savvy investors are loading up at current levels, but why is there such a disconnect in the first place?

Capital expenditures are the main answer. Investors have become increasingly skeptical of rising costs related to the AI build-out. Meta Platforms expects to incur between $130 billion and $145 billion in capital expenditures this year. That’s a slight increase from the $125 billion to $145 billion range Meta Platforms suggested earlier in the year.

Investors eventually want to see a return on all of that capital. While it has helped with online advertising revenue, Meta Platforms is still looking to translate new ventures into meaningful revenue growth opportunities.

Investors have been moving away from hyperscalers as a whole, not just Meta Platforms. Several members of the Magnificent Seven have compelling valuations and continue to improve their fundamentals even as their stock prices go down. Meta Platforms belongs in that category, and as long as sentiment remains negative, it will give long-term investors an opportunity to buy at a discount.