This year has been a volatile one for social media giant Meta Platforms (NASDAQ:META). It has hit highs of nearly $780, and its lows have been around $520. It’s a vast range, and it demonstrates just how polarizing a stock this can be. On the one hand, it’s a growth machine. On the other, it’s also extremely aggressive when pursuing new growth opportunities, and thus, high capital spending can weigh on investors’ minds.
Right now, the market is feeling bearish on Meta’s stock again. Its latest quarterly results weren’t impressive enough to justify sending the stock to an even higher valuation. But with it down close to 20% from its high, could it be a steal of a deal right now, while it trades at around $650?
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What has spooked investors?
Before buying a stock on a dip, it’s important to understand why it’s down to determine whether this is temporary adversity weighing on the stock or longer-lasting problems to worry about.
While Meta’s business performed well in the third quarter, which ended on Sept. 30, with sales rising 26% and beating expectations, it appears that, once again, concerns about high spending are keeping growth investors away.
During the quarter, the company’s free cash flow went negative, with $2.1 billion leaving the business, as its capital expenditures were higher than the cash flow that it generated from its day-to-day operating activities. The company has been investing heavily in artificial intelligence (AI), and the worry is that the payoff may not be there.
In September, the company revealed its personal AI agent, Muse, which aims to help people with day-to-day tasks. It’s a key part of the company’s AI strategy, but whether consumers will trust an AI associated with a company that doesn’t have the greatest track record for data privacy is certainly questionable.
The stock looks cheap, but I wouldn’t call it a steal
Meta’s stock is trading at a forward price-to-earnings multiple of 18, which is based on analyst projections. That’s an attractive-looking price tag for a top tech giant.
However, the company has faced adversity in recent years, coming under pressure from lawmakers about protecting children on its platforms and overall data privacy. There’s some concerning long-term risk here, which I believe warrants a greater discount for the stock than where it trades at right now. That’s why, as cheap as Meta’s stock may look right now, I wouldn’t rush to buy it.
