The proportion of Metaplatforms (NASDAQ:FTC) has fallen sharply this year, especially recently. In particular, weaker quarterly numbers and critically viewed investments in the metaverse led to a loss of confidence. Whether the value character can play a good chance? Quite doubtful.
One analyst said Meta stock could fall another 70%. In this case, the technology group would only be valued at a market value of US$94 billion. Only a fraction would then be left of the former company, which appeared to be a trillion dollar stock market empire.
Well, a lot still needs to happen before then. So let’s look at the basis of this assumption.
Meta Stock: Another 70% Price Loss? Oh so…
There is an interesting post on Seeking Alpha that puts this out there. The editor and analyst bases his assumption on one metric: the price-to-earnings-growth ratio. Or, in short, in English: PEG.
The value of the Meta stock is currently 3.88. This means it has a premium rating of 236% compared to the technical average of just 1.15. If we therefore assume that the market will price this premium again at the social media group, the shares would have to collapse by the said 70%.
As I said: It is a basic approach that the editor uses on the meta stock. But one that seems to rely on only one metric at the moment. If we look at the 2021 valuation, we can see a price/earnings ratio of only 8 and a price/sales ratio of not even 3. I doubt that the current position is sufficient for a price/earnings ratio of less than 3 in relation to 2021 numbers and a price to sales multiple of 1. Not even if the numbers continue to drop a bit.
No, more had to happen for that. For another 70% loss in value, Meta stock would have to show serious, lasting difficulties in its own core business. This is also a thesis that many analysts and editors already support.
Question: Is the core business intact?
Using the price-to-earnings-growth ratio is one way to value the past growth stock. However, the multiplier is unfavorable (or advantageous for positioning) because the results are not that strong at the moment. At least I don’t see a 70% drop unless the core business is seriously and existentially at risk.
The meta stock is undeniably in flux right now. However, if investors are convinced that there is still a prospect and that the core business model is indeed still intact, there may well be value behind the stock. Decide for yourself what is more likely for you in the long run.
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Vincent owns shares in Meta Platforms. The Motley Fool owns stock in and recommends Meta Platforms.