The most recent financial statements from META Platforms were not well received by the markets. Despite continued increases in revenue and profits, META stock went down after the latest financial earnings release. The reason is simple: relativity. While an investment in stocks may get an investor profits, the days of high flying stocks are over because interest rates are increasing more and more. This will drive stocks lower and lower.
But, that relativity is also the reason why META stock is a buy at these levels. META is yielding a better yield than the benchmark 10-year yield – at least for now. Most tech stocks are selling off lately. But, a lot is riding on the unemployment report on Friday.
Revenue
Revenue improved for META platforms with an outperform on revenue. But, that was not good enough for the broader stock market. This is short-sighted. But, looking forward to projected revenue helps to understand the future of META Platforms.
Projected Revenue
Within a continually expanding economy, META Platforms will perform well. Projections for 2024 have META printing $150B in revenue. If the economy is not interrupted by increasing interest rates, META will print solid revenue gains that are well above the overall economy’s ability to expand. If interest rates don’t cut the economy short, META Platforms are going to print expanding revenue.
But, inflation remains sticky and high. The likelihood that we see continued increases in interest rates still exists. If the upcoming economic data shows strong resilience in employment, this would drive interest rates higher and then stocks across the board will drop.
Net Margins
One thing about META Platforms is that they continually cash. META has increasing revenues and their margins are very high relative to many other companies. The broader S&P 500 prints about 8.25% net earnings. At this rate, META Platforms far outpaces the broader market. And, if you are going to invest in a company you want to look for a company that has a monopoly of sorts, as META Platforms does.
Projected Earnings Per Share
Future earnings are coming in ~$16.90 (Next Four Quarters to include Q4 2023). This means that at the current stock price of $300.00, the future yield on META stock is some 5.633% over the next four quarters. This is far above the benchmark 10-Year US Treasury which is yielding 4.875%. At this yield, you would opt for META stock over the benchmark.
That being said, many other tech stocks are trading well below the benchmark US Treasury yield. Because of that, those other stocks are selling off and shifting downward. META stock is following suit. But, it is a much better yielding stock by comparison – the market has it wrong.
Nonetheless, what happens in the coming month because of interest rates will affect all stocks across the board. If economic data continues to come in robust, this could push stocks lower.
Given the fact that stocks may move lower because of higher interest rates, it is also necessary to adjust META stock buy price lower simply because if interest rates continue higher, this will contract the economy and consumption will slow. Revenues for companies will fall, along with profits. The future of the economy is a bit uncertain, and so is pulling the trigger on META stock at this point.
META Stock
I love the yield of META stock. However, it is dependent upon what happens next with interest rates. If we see robust numbers moving forward, while META is offering a solid yield, the economy will contract. Because of that, META stock will move lower because of a contracting economy. There is no way that these companies will be able to hit their target revenue & profit goals if the economy contracts, or is forced to because of inflation and high interest rates.
I will continually update what I think on the economy and what happens afterward. Then, I can add more with META stock.