Meta Platforms (NASDAQ:META) had a turbulent 2022, plunging from a high of roughly $380 per share to the $88 level, and then more than tripling in early 2023.
At around $300 per share at the time of writing, META stock has certainly become one of the come back stories investors like to see. Those who have held this stock through the turbulence are none the worse for the wear, especially if those same investors bought the stock years ago.
Of course, news often mirrors stock performance, and it’s crucial to remember the negative headlines about Meta during its decline.
Now, optimism abounds for many large-cap tech stocks. That said, investors must consider whether it’s overvalued or rightfully bullish after its roughly 10% decline from its recent peak. Here are three catalysts I think are worth watching when it comes to Meta right now.
Meta Platforms is Being Re-Rated Higher
Among 42 analysts, 40 rate Mets Platforms stock as “buy,” with none issuing a recent “sell” rating, despite its August decline. Analysts, like Scott Devitt from Wedbush, see potential in Meta’s job cuts leading to improved margins.
Devitt notes enhanced monetization in newer areas like Reels and click-to-message ads, setting a $350 price target for META stock. Similarly, Bank of America (NYSE:BAC) analysts, with a $375 price target, anticipate renewed enthusiasm for Meta’s stock in 2024 once spending targets are clearer.
As more analysts jump on Meta Platforms as a potential long-term opportunity, I expect more price target hikes and upgrades on the horizon.
Strong Fundamentals
Meta stands out in the tech sector with just 21.6% of its capitalization comprised of debt, a modest figure compared to other tech firms.
Meta’s free cash flow, around $24 billion this year, surpasses its total debt of approximately $37 billion, a rarity in the corporate world. This robust cash flow has allowed Meta to repurchase 101 million of its own shares in the past year, benefiting shareholders and boosting stock prices.
Meta’s return on invested capital (or ROIC) historically ranged from 15% to 20%, ensuring that the money used for stock buybacks generates similar returns for shareholders.
While criticism exists for Meta’s investment in the metaverse, which has yet to yield expected profits, it has lowered ROIC to 14%, still strong compared to many companies.
Meta’s robust fundamentals extend to its market share, with Facebook commanding 53.1% of all social media visits (excluding Instagram). This significant presence offers multiple avenues for monetization, irrespective of the metaverse’s success.
AI Is The Main Near-Term Catalyst
Meta Platforms understands the need for substantial investments in specific areas. It’s a manageable challenge as long as the company can maintain strong revenue growth. While Q2 2023 showed an 11% year-over-year revenue increase, the focus now shifts to what will drive revenue growth in the latter half of 2023 and 2024.
Meta Platforms is said to be working on an AI bot for enhancing business customer service and an internal AI tool designed to boost staff productivity.
Of course, given the attention around artificial intelligence of late, this has garnered some attention. That said, over the longer-term, we’ll have to see how this actually impacts the company’s bottom line (if it’s more or less like Meta’s move into the metaverse, for example).
What Now for Meta Platforms?
While Meta shifts its focus to Threads and monetizing Instagram/WhatsApp, the metaverse project might lose some prominence.
However, analysts expect double-digit earnings per share growth (around 26.7%) over the next twelve months, which could propel the stock higher, given the historical link between EPS and stock prices.
Consider the potential if they redirect metaverse spending is redirected elsewhere, possibly restoring ROIC to its historical levels.
This could result in more substantial share buybacks and higher analyst targets due to improved monetization and ROIC. Investors should seize this opportunity.
On the date of publication, Chris MacDonald has a LONG position in META. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.