Meta Platforms (NASDAQ:META), the tech behemoth formerly known as Facebook, has been on a tear lately, leaving many investors with impressive gains. As a long-term shareholder sitting on 46% growth in the last year alone, I find myself at a crossroads. Should I cash in my chips or double down on this S&P 500 powerhouse?
Strong performance
Meta’s recent performance has been nothing short of stellar. With a market cap of $1.2trn, the company has rebounded impressively from its 2022 lows. This resurgence has been driven by several factors, including a renewed focus on efficiency, advances in AI, and the continued dominance of its core social media platforms.
Its financial health looks robust, with a strong balance sheet and impressive profit margins. In the last 12 months, the firm generated a whopping $142.71bn in revenue, with earnings of $45.76bn. These figures translate to a very healthy net profit margin of 32%, showcasing the company’s ability to turn user engagement into cold, hard cash.
Moreover, future growth prospects appear bright. Analysts forecast earnings to grow at 12% per year, a respectable rate for a company of its size. The tech giant’s investments in AI and the metaverse, while costly in the short term, could potentially open up new revenue streams and cement its position as a leader in the next wave of technological innovation.
Risk as well as reward
However, it’s not all sunshine and rainbows in Zuckerberg’s empire. Many analysts argue that the shares are currently overvalued, trading at a premium to estimated fair value. I wouldn’t necessarily agree, with a discounted cash flow (DCF) calculation showing the shares are still about 28% below fair value.
More of a concern in the near term is the company’s Reality Labs division, responsible for its metaverse ambitions. Since the end of 2020, when management first reported on these activities, there has been a massive $45bn loss overall from the segment. This could be a huge winner in the future, but for now it’s uncertain whether the investment is worthwhile.
Additionally, recent insider activity shows few buying the shares in the last year, and close to $10m in sales. This trend isn’t necessarily related to future performance, but it isn’t a great sign of confidence.
I’m also slightly worried about regulatory challenges. The company regularly faces scrutiny from regulators worldwide. Changes in data privacy laws or antitrust actions could significantly impact its business model and profitability.
Stick or twist?
Ultimately, the decision to take profits or increase my stake in Meta Platforms is a tricky one. Some long-term investors with a high conviction in Meta’s ability to navigate the evolving tech landscape may see the current price as an opportunity. On the other hand, many with healthy profits will likely be considering taking some off the table.
One thing is certain: it remains a fascinating company to watch. Its journey from a college dorm room project to a trillion-dollar tech titan is a testament to the transformative power of innovation. As the S&P 500 company continues to shape the way we connect, communicate, and consume content, it will likely remain a topic of heated debate among investors and analysts alike. I’ll be holding on to my shares for now, but will be cautiously buying more if management can offset some of the risks I’ve noted.
This post was originally published on Motley Fool
