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It’s Not Too Late: Invest in Meta Stock Now

Key Points
Meta stock has experienced considerable volatility in the past year, with significant fluctuations between its lowest and highest points. To determine its future direction, investors should focus on the following fundamentals.
When assessing the financial strength of the company, investors should consider the following factors that contribute to Meta stock’s unrecognized potential.
There are two key factors that could drive analyst targets higher in the near future.
5 stocks we like better than Meta Platforms
Meta Platforms NASDAQ: META has surprised the market with its rollercoaster ride over the past twelve months. Starting from a high of $350 per share in 2022, it plummeted to around $88 per share and then experienced a 269% increase at the start of 2023.
News tends to follow stock prices, and this is crucial to remember when recalling the negative headlines surrounding Meta during its decline, particularly regarding its investment in the metaverse. Now that the stock has nearly reached its all-time high of $384.3, stories about the stock are more optimistic.
So, what should investors pay attention to? Is the stock overvalued after its substantial rise, or are the positive news and sentiment justified? While there is no definitive answer, there are clear trends that make Meta a potential investment, especially after its recent 16% decline.
Solid Fundamentals
Many technology companies carry significant debt on their balance sheets, making their stock prices highly sensitive to changes in interest rates. Meta stands out in this regard, with its debt accounting for only 21.6% of its total capitalization, which is low for the tech sector.
Not only is the debt level lower than the industry average, but Meta’s free cash flow (operating cash flow minus capital expenditures) for the year has been around $24 billion, while its total debt stands at approximately $37 billion today.
With less than a year and a half of free cash flow, Meta could pay off its entire debt, a feat that only a few companies can achieve. Additionally, strong free cash flow is a significant driver of stock price growth. Here’s how this is happening.
Using its free cash flow, Meta has bought back a significant number of shares, specifically 101 million shares, in the past year. This benefits shareholders as they own a larger portion of a growing company.
Another advantage, often overlooked by investors, is that Meta’s return on invested capital (ROIC) has historically ranged between 15% and 20%, meaning the money used to buy back stock also generates returns for shareholders. Some critics have questioned Meta’s heavy investment in the metaverse, which has yet to produce profits or the expected growth. This has caused the ROIC to decline to a five-year low of 14%, which, although lower than usual, is still impressive.

New Highs on the Way
Analysts’ consensus price target for Meta is $319.79, suggesting a potential upside of 8% from current levels. Considering the factors that could drive the stock higher, these targets may appear conservative.
While the focus has been on the metaverse, it’s important to remember that Meta also owns other major platforms such as Instagram and WhatsApp. As short-form content dominates the world of marketing and digital ads, Instagram Reels have gained significant popularity.
Despite a contraction in American business activity (as indicated by nine months of consecutive contraction readings in the ISM Manufacturing PMI index), advertising revenue for Meta increased by 11.8% in the year. This shows that businesses still rely on Meta for their online advertising solutions, even during challenging times.
Additionally, the metaverse itself represents a potential opportunity. As Meta continues to invest in this and other projects, the capital spent in the metaverse could yield returns in the future.
Now that Meta is diversifying its focus with projects like Threads and monetizing Instagram/WhatsApp, the metaverse project may take a back seat. Even with the assumption of further spending, analysts expect double-digit growth in earnings per share over the next twelve months.
Analyst EPS projections indicate a jump of 26.7%, which would drive a similar-sized rally in the stock, as EPS is a key driver of stock prices.
In an optimistic scenario, imagine the potential if the cash spent in the metaverse is redirected to other areas. Could ROIC return to historical levels? Would management have additional funds for more aggressive share repurchases? These possibilities may cause analysts to revise their targets higher than current levels. It’s up to investors to decide if they can get ahead of them.Before you consider Meta Platforms, you’ll want to hear this. While Meta Platforms currently has a “Moderate Buy” rating among analysts, top-rated analysts believe these five stocks are better buys. View The Five Stocks Here Which stocks are likely to thrive in today’s challenging market? Click the link below and we’ll send you MarketBeat’s list of ten stocks that will drive in any economic environment. Get This Free Report

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