Why Long-Term Investors Should Buy Meta Platforms Stock

Meta Platforms (NASDAQ:FB) has been obliterated, as have several other FAANG stocks. The 56% peak-to-trough decline for FB stock is surprisingly not the worst of the group, though. It’s slightly worse than Amazon (NASDAQ:AMZN), which has fallen 46%, but is ahead of Netflix (NASDAQ:NFLX) and its 77% beating. The point is pretty simple: FAANG names have been crushed. While that creates short-term stress, it also makes long-term opportunities possible. 

When we dig through Meta, we have the same or similar outline we’ve had for years. Growth is stagnant at the moment, so the stock is getting crushed. The company is then forced to invest in its future, which weighs on its bottom line. Social media is both a blessing and a curse on society and will remain in this pro/con deadlock for years to come. 

We’ve seen this play out before where Facebook had trouble growing its business and warned investors it would take a hit on the bottom line. That was in 2018. 

The company now goes by Meta Platforms, but investors are being presented with a similar dilemma. The question now is: will investors recognize the pattern?

We’ve Seen This Story Before

In July 2018, FB stock dove 20% on a disappointing earnings update from management. The company issued “guidance for dropping revenue growth rates” and said it sees its “growth rate dropping by high single digits for the next couple of quarters.” Lastly, the company said that “total expense growth will exceed revenue growth in 2019.” User growth was also disappointing. 

While it is a different environment now, we have a very similar setting. 

In February 2022, the company guided light on revenue, user growth disappointed due to “increased competition,” and expenses were on the rise — this time due to its plans in the metaverse. All the rhetoric is the same now and guess what? FB stock fell 44% in 2018 and went on to rise more than 200% in less than three years. I don’t know that we can expect a repeat performance, but it’s clear that the current selloff is an opportunity. 

The Positives for Meta Platforms

Those positives include strong profitability, a low valuation, leadership in assets and platforms, and solid growth. 

“Solid growth” does remain a bit vulnerable — it’s definitely the weakest argument of those listed above. That’s because there are only so many users the company can add to its existing platforms and only so much revenue that can be extracted. Further, recessions will drown out advertising dollars. That said, ad spend tends to be the last budget line to go and the first to spring back to life. 

The rest of the catalysts — profitability, valuation and assets — remain impressive. 

Analysts still expect Meta to grow revenue 7.5% this year, but estimates call for an acceleration up to 16.5% growth in 2023. On the earnings front, estimates call for a decline this year, with a 13% decline for the bottom line. On the plus side, analysts expect almost 20% growth in 2023. 

No one likes to see earnings decline year-over-year. On the plus side though, FB stock has already been halved and shares now trade at just over 16 times this year’s earnings. That’s cheaper than the S&P 500. 

The company still boasts industry leading margins, with gross and net margins sitting at 81.72% and 31.2%, respectively. So while we’re seeing an earnings dip in the short-term, Meta still has immense profitability and a low valuation. Not to mention that four of the top 10 mobile apps of 2021 belonged to Meta. That includes two of the top three and three of the top four apps. 

Trading FB Stock

So far, it’s pretty clear that FB stock has been struggling with the $200 level. Further, the 10-week moving average has been clear resistance. 

If it clears these marks, bulls could make a case that $225 to $235 could be in play. Not only have we seen responsive price action in this area, but it’s also where the 21-week and 200-week moving averages come into play. 

If the selling pressure picks up, FB stock could be vulnerable down to the upper-$180s, which has been support on a weekly basis. Further selling pressure could put the $175 area on deck. Below that and the 2022 low is in play at $169. 

On the date of publication, Bret Kenwell did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.