meta platforms (META – Free Report) is one of the most followed stocks by Zacks.com visitors lately. As such, it might be a good idea to review some of the factors that could impact the stock’s near-term performance.
Over the past month, shares of this social media company have returned -15.3%, compared to a +5.4% change in the Zacks S&P 500 Composite. During that period, the Zacks Internet software branch, which includes meta platforms, is down 9.1%. The crucial question now is: What could the future direction of the stock be?
While news releases or rumors of a material change in a company’s business prospects will usually “trend” the stock and result in an immediate price change, there are always some basic facts that ultimately drive the buy-and-hold decision.
Revisions to earnings estimates
Here at Zacks, we prioritize evaluating the change in forecasting a company’s future earnings over anything else. That’s because we believe the present value of its future earnings streams determines the fair value of its stock.
Essentially, our analysis is based on how sell-side analysts who cover the stock revise their earnings estimates to reflect the latest business trends. As earnings estimates for a company increase, so does the fair value of its stock. And when a stock’s fair value is higher than its current market price, investors tend to buy the stock, causing its price to move higher. For this reason, empirical studies indicate a strong correlation between trends in earnings estimate revisions and short-term stock price movements.
For the current quarter, Meta Platforms is expected to post earnings per share of $2.13, a -42% change from the same quarter last year. The Zacks Consensus Estimate is down -11.7% over the last 30 days.
For the year-to-date, the consensus earnings estimate of $8.96 indicates a change of -34.9% year-on-year. In the last 30 days, this estimate has changed by -5.3%.
For the next fiscal year, the consensus earnings estimate of $7.70 indicates a change of -14.1% from what Meta Platforms was supposed to report a year ago. Over the past month, the estimate has changed by -25.9%.
With an impressive, third-party audited track record, our proprietary stock ranking tool – the Zacks Rank – is a more meaningful indicator of a stock’s short-term price performance because it effectively harnesses the power of earnings estimate revisions. The size of the recent consensus estimate change, along with three other factors related to earnings estimates, has resulted in a Zacks rank #3 (hold) for meta platforms.
The chart below shows the development of the company’s 12-month consensus EPS estimate:
12 Month EPS
Sales Growth Forecast
As such, while earnings growth is arguably the best indicator of a company’s financial health, nothing happens when a company is unable to grow its earnings. After all, it’s nearly impossible for a company to grow its profits over a sustained period of time without increasing sales. Therefore, it is important to know a company’s potential revenue growth.
In the case of meta platforms, the consensus estimate of $31.23 billion for the current quarter indicates a -7.2% year-on-year change. The estimates of $115.71 billion and $120.74 billion for the current and next fiscal year indicate changes of -1.9% and +4.4%, respectively.
Latest reported results and surprise history
Meta Platforms reported revenue of $27.71 billion for the most recent quarter, a -4.5% year-over-year change. EPS of $1.64 for the same period compared to $3.22 a year ago.
Compared to the Zacks Consensus estimate of $27.4 billion, reported earnings represent a surprise of +1.13%. EPS surprise was -12.77%.
In the past four quarters, the company beat EPS estimates just once. The company topped consensus estimates for sales three times during that period.
No investment decision can be efficient without considering a stock’s valuation. When predicting the future price development of a stock, it is crucial to determine whether its current price accurately reflects the intrinsic value of the underlying business and the company’s growth prospects.
Comparing the current values of a company’s valuation multiples, such as price-to-earnings (P/E), price-to-sales (P/S), and price-to-cash flow (P/CF), with its own historical values will help determine if the stock is fair valued, overvalued or undervalued. Comparing the company versus its peers using these parameters gives a good sense of the reasonableness of the stock price.
As part of the Zacks Style Scores system, the Zacks Value Style Score (which assesses both traditional and unconventional valuation metrics) organizes stocks into five groups from A to F (A is better than B; B is better than C; and so on), making it helpful in determining whether a stock is overvalued, correctly valued, or temporarily undervalued.
Meta Platforms is rated A on this front, indicating it is trading at a discount to its peers. Click here to view the values of some of the assessment metrics that led to this grade.
The facts discussed here and plenty of other information on Zacks.com could help determine whether or not the market excitement surrounding meta platforms is worth paying attention to. However, its No. 3 Zacks rank suggests that it could move in line with the broader market in the near future.