Analysts Consider Meta Platforms Undervalued And A Recession Hedge

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Meta Platforms (NASDAQ:META) is underperforming analysts’ expectations, and various analysts and investment banks have slashed their price targets. The stock currently has a 75.85% upside to the MarketBeat consensus price target and holds its analyst rating of a moderate buy. The main criticism the stock has received is due to its slowing revenue growth, fierce competition from TikTok, and its Metaverse investment that likely will not pay off until 2030. Other headwinds battering this stock include new regulatory frameworks that will probably make future acquisitions for the company more difficult and macroeconomic challenges that continue to affect the broader market. Despite the bad news surrounding Meta and its negative short-term outlook, some analysts consider the stock undervalued from its current levels and, unusually for a tech stock, as a hedge against an economic downturn.

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Why Bulls Are Buying Meta

It supports the notion that Meta is undervalued because its P/E ratio has made a new quarterly low, and its stock price is trading at lows not seen since the 2020 stock market crash due to the COVID-19 pandemic. On a more recent timeframe, it's also trading near the bottom of its 52-week range. The stock had a peak quarterly EPS of $14; during this time, its P/E was 24.24. Today its P/E stands at just under half that at 12.68 with a slightly reduced EPS of $13.19.

It should be noted that Meta's YoY quarterly growth has fallen sharply for three straight quarters, from 55.60% in Q3'21 down to just 6.64% for Q1'22. When the company announces its earnings for Q2'22, it will be seen if it can reverse its trend. Still, indications are that it is holding off on delivering an immediate yield for investors in favor of a long-term (and riskier) payoff in its Metaverse and other investments.

Meta As A Recession Hedge

While Meta may not offer dividends or have other defensive qualities as stocks that do well in a recession, some aspects of the company make it highly resilient, including its financial health. The company has a strong balance sheet with $43.89B worth of cash and low total debt. Its 3-year beta is also 1.01, making the stock less volatile than one might assume. Also, although the company does have a large account receivables balance, its time in getting paid for this credit is above average, with a day of sales outstanding ratio at 34.74.

Meta Vs. Twitter

Twitter (NYSE:TWTR) is Meta's main rival in the social media space and makes for an interesting benchmark. Twitter is significantly smaller than Meta, with a market cap of 29.56B compared with 467.68B. Twitter has also given investors a much better investment yield than Meta. Over the last five years, Meta returned 2.68% to shareholders while Twitter returned 92.24%.

In terms of valuation, it would be hard for the companies to be more different, with Meta coming out on top. Meta's FWD P/E stands at 14.61, while Twitter has an FWD P/E of 137.14. Meta also beats Twitter regarding the P/S ratio, with 3.89 for Meta and 5.81 for Twitter. Meta beats Twitter in its 5-year CAGR revenue growth, which stands at 31.63% compared with Twitter's 16.12%.

Meta Platforms is a part of the Entrepreneur Index, which tracks some of the largest publicly traded companies founded and run by entrepreneurs.

Article by Matthew North, MarketBeat

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