Should I buy Meta shares?

At the beginning of last year, Meta platform (NASDAQ: META ) seems to be on an unstoppable mission to burn as much cash as possible. As a result, Meta shares fell 27%.

With 2023 as the year of efficiency, the share price starts to recover. So, is the stock a bargain at the current price, or is it too late for investors to buy Meta stock?

What has changed?

A year ago, Meta faced some problems. But some things the company has been doing since then.

First, the business can reverse the trend of losing TikTok. And on top of this, the rival faces doubts about its long-term future in the UK and US.

Second, AppleThe privacy changes are predicted to cost Meta $10bn in advertising revenue. But the company’s AI investment may also provide business solutions.

Third, the company has been striving for efficiency. This resulted in the loss of around 21,000 employees over two phases and restructuring to get more from the remaining staff.

All of this sounds like positive news, from a shareholder’s point of view, which explains why the stock has doubled since its November 2022 low. But is it a buy?

Evaluation

At current prices, Meta trades at a price-to-earnings ratio (P/E) of 27. For context, that’s higher than parent company Google Alphabet (22), but there are a few things worth noting.

First, Alphabet has problems to contend with. Mainly, competition from Microsoft has cast doubt on Google’s long-term dominance.

Second, I expect Meta’s earnings to grow significantly. Analysts forecast earnings per share (EPS) to be $10.22 this year, rising to $15.89 in 2026.

At the current price, $15.89 in EPS would be a P/E ratio of 13. I don’t expect Meta stock to trade at that level, so if the company gets that earnings, I think the stock will go higher.

Even after rising 70% since the start of the year, the stock still looks like it’s reasonably priced. But I still have reason to be cautious.

One of the big problems with Meta stock last year was the amount of money the company was putting into the metaverse project. And I think that’s still worrying.

There is an argument to be made that the metaverse segment doesn’t matter because the core platform matches the market cap. I think this is a bad argument.

Reality Labs (which houses the company’s metaverse operations) is not something to be ignored. It is a significant loss of money.

In 2022, the metaverse project lost $13.7bn, after losing $10.2bn the previous year. Even with the reduction in staff, I don’t see that changing.

Metaverse looks like a worthwhile investment. And I’m not sure it’ll pay off – the metaverse seems more believable when the pandemic lockdown is in place.

Risk and reward

I understand that not all Meta capital expenditures are focused on the metaverse. But it’s a big part and that means there’s a lot of uncertainty from my perspective.

At $100 per share, I thought there was enough potential to justify the risk. At $211, I consider the equation less attractive, so I will continue to watch for better opportunities.