Stocktake: Are Meta shares cheap?

Shares in Facebook parent Meta have been slaughtered since the company's recent earnings miss. Is the stock cheap?

Well, having fallen 43 per cent since 2021's peak, it's certainly not expensive. Although Meta grew earnings by 36 per cent over the last year, it trades on just 16 times trailing earnings – the lowest in the company's history, says Compound Capital Advisors' Charlie Bilello.

Bilello notes Meta is cheap relative to the S&P 500, which trades on 23 times earnings, and to large-cap tech stocks like Amazon (49), Microsoft (32), Apple (28) and Alphabet (25).

Technically, too, the stock is extremely oversold. Meta’s relative strength index (RSI), a momentum indicator, recently hit its lowest level in 10 years.

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Of course, there are good reasons for this. Daily active users have fallen for the first time. Facing increased competition, Facebook is increasingly regarded as passé, with younger folks migrating to apps like TikTok. Apple’s privacy changes have hurt Facebook’s ability to target users with ads. Meta is betting big on the metaverse, but no one knows if those expensive investments will ever pay off.

These and other factors have deterred investors, with the stock continuing to slide in the days after its earnings-related selloff.

Still, while Meta may well have “dark days ahead”, as Wedbush analyst Dan Ives warns, Bilello notes the same investors who were happy to buy the company at over 30 times earnings last year no longer want it at a fraction of that multiple.

He cites financial advisor Cullen Roche: the stock market is the only market where things go on sale and all the customers run out of the store.