Down 31%, is this a rare opportunity to buy Meta stock for my ISA on the cheap?
Image source: Meta Platforms
Meta Platforms (NASDAQ: META ) stock has taken a big hit recently. Yesterday (March 26), it fell 8% taking its decline from the high to 31%.
Is it time to buy this Magnificent 7 name for my portfolio? Let’s look at the setup.
It looks cheap today
The Meta sure looks cheap right now. With analysts expecting earnings per share of $29.80 this year and $34.40 next, we’re looking at forward-looking price-to-earnings (P/E) ratios of 18.4 and 15.9.
These are the low estimates for Magnificent 7 stock. Especially when you look at the growth that Meta is expected to do in the coming years.
This year, revenue is expected to rise by around 25% year-on-year to $250bn. Next year, analysts expect $296bn (+18%).
In terms of earnings per share, we are looking at growth of around 27% this year and 15% next year. If we take that expected 2026 earnings growth figure and compare it to the P/E ratio, we get a price-to-earnings-growth (PEG) ratio of just 0.7 (a ratio of less than one usually indicates that the stock is not well known).
AI winner?
Looking beyond valuation, Meta has big plans for the future. While the company is known for its social media today, it may be an AI venture further down the track.
Meta’s mission is to build a ‘high intelligence’ platform and give people access to powerful AI tools that can empower them to achieve unprecedented productivity. Ultimately, its goal is to be a valuable asset in the AI era.
To do this, it invests billions in AI infrastructure (data centers, chips, nuclear power, etc.). It also focuses on products such as giant tongue brands (Llama) and smart glasses.
So, there is a long-term growth story here. If the world continues to use AI, the Meta could be very large.
Big risks for investors
While this all sounds exciting, there are a few risks to the investment (both short-term and long-term). In the short term, the company is facing a high level of regulatory/legal scrutiny due to the addictive nature of its platforms.
The reason why the share price fell yesterday is that the company lost a case in court regarding damages in social media. Experts believe this could open a wave of litigation (which could have a major impact on its profitability and cash flow).
Meanwhile, in the long run, we don’t know if Meta’s huge investment in AI (it plans to spend up to $135bn this year) will really pay off. The company will have a lot of competition in this space and at this stage, no one knows exactly how AI will play out.
Another thing you can say is that the stock price chart looks bad. Right now, the stock is in bad shape and buying can be like trying to catch a falling knife.
Better opportunities in the market?
Taking all of this into account, I would not buy Meta stock for my portfolio right now. In my opinion, it is very dangerous.
I think there are better opportunities for me in the market right now.
