(Bloomberg) — Over its lifetime as a publicly traded company, Facebook’s parent company, Meta Platforms Inc., has repeatedly demonstrated its ability to bounce back after earnings disappointments or various controversies weighed down on the action. Not this time.
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The shares just closed their lowest since May 2020 and are down more than 45% from a September high, a decline not seen among major U.S. tech stocks in recent years. The crisis pushed Meta out of the top 10 largest global companies by market value, while leaving it trading at its lowest price ever.
“The management team needs to show investors over the next few quarters a path to growth,” said David Wagner, portfolio manager at Aptus Capital Advisors. He added that the stock, which he owns, is “in purgatory” and that sentiment “couldn’t be any lower”.
Meta’s growth issues stand in stark contrast to other tech giants, which have reported strong results this season, helping to limit their stock’s decline in a mostly negative start to 2022. Its shares fluctuated between gains and losses in early trading on Friday.
Investors have long been quick to buy big tech on weakness as they bet the group will continue to experience robust growth. As a result, declines of the magnitude that Meta has experienced have not occurred in the era of trillion-dollar market caps for companies.
Apple hasn’t seen a 40% decline since 2013, according to data compiled by Bloomberg. For Microsoft Corp., Amazon.com Inc. or Alphabet Inc., the last time they experienced a decline of this magnitude was around the financial crisis.
Meta “is the company people love to hate, and Alphabet is an easy alternative if you want exposure to online advertising,” said Bill Stone, chief investment officer at Glenview Trust Co. “You don’t get questions difficult on the part of customers to own Alphabet, which is doing well and not as hairy as a business.
Meta’s stock weakness has made it attractive in terms of traditional valuation metrics. The stock’s forward price-to-earnings ratio is below 14, its lowest on record, and well below its five-year average of 20.9. The forward price-to-sales ratio is around 4.2, also an all-time high. Meta is trading at its biggest discount to the Nasdaq 100 index.
Partly because of the valuation, Meta continues to have fans on Wall Street. Nearly three-quarters of analysts who cover the stock recommend buying it, according to data compiled by Bloomberg, while analysts’ average price target points to more than 60% upside.
Glenview’s Stone, which owns the stock, is among those betting on a rebound, although it admits a turnaround could be a long-term process.
“The current cheapness outweighs any problems it faces,” he said in an interview. “If it can grow anywhere near where it used to grow, then that’s stealing. It will be too cheap to resist.
Technical table of the day
Tencent Holdings Ltd. once again found itself among the top 10 global companies by market value thanks to the fall of Meta Platforms Inc. and the rebound in shares of the Chinese tech giant. Tencent had been removed from the list in mid-September amid Beijing’s sweeping regulatory crackdown on private companies. Its Hong Kong-listed shares have risen around 8% this year as diminishing regulatory concerns have attracted investors, taking its value to around $590 billion.
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(Updates stock price movements throughout.)
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