Meta trades like value stock after $500 Billion rout

Source: Reuters

The company formerly known as Facebook is cheaper than the average value stock. But that’s still not cheap enough for bargain hunters in the stock market.

The problem is that many investors have lost confidence in Meta Platforms Inc.’s ability to expand its core business and deliver a payoff from its big spending in pursuit of its so-called metaverse strategy shift.

Heightened competition, lack of visibility on its metaverse shift and regulatory risks make it “challenging to be excited about Meta’s stock at current levels,” Lightshed Partners analysts including Richard Greenfield said in a report on Wednesday.

Meta’s stock plunged after a catastrophic quarterly earnings report in February, fueling a historic selloff that has lopped off about $500 billion in market value since the stock’s peak in September. A flurry of ratings downgrades followed, with analysts from JPMorgan Chase & Co. to BMO Capital Markets cautioning investors on its cloudy outlook.

Meta now sells for less than 15 times estimated earnings, making it cheaper than the S&P 500 Value Index of companies such as tractor maker Deere & Co. that are inexpensive relative to profits. That’s never happened before in Meta’s tenure as a listed company. It’s less pricey than roughly two thirds of the stocks in the S&P 500 Index, according to data compiled by Bloomberg. By comparison, the average valuation in the Nasdaq 100 Stock Index is 24 times and the S&P 500 Value Index is more than 16.

While Meta’s shares have bounced from a two-year low on March 14, they’re still down 44% from the September record.

For Jason Benowitz, a senior portfolio manager with Roosevelt Investment Group, there are too many unknowns -- from the outlook for growth to the metaverse pivot -- to buy the stock at this point. Even so, it’s surprising that other investors don’t seem to be diving in due to its valuation.

“It is striking that many people aren’t stepping in,” Benowitz said in an interview. “Right now it just feels like a black hole.”

Uncertainty about Chief Executive Officer Mark Zuckerberg’s foray into the metaverse might be holding some back. “Whether or not Meta can become an operating system for the metaverse is obviously unknowable at this point, albeit there is actually a far more fundamental question of whether Zuckerberg’s metaverse vision ever plays out or at least within an investable timeframe,” Greenfield said.