Meta (NASDAQ:META) stock surged 180% in 2023. It was among the best performing stocks worldwide. Of course, the rise of artificial intelligence (AI) played a part in that, with tech giants among those poised to utilise its potential.
In 2023, shares of the so-called ‘Magnificent Seven’ — Apple, Microsoft, Alphabet, Amazon, Nvidia, Meta and Tesla — experienced significant share price growth. Individually, they rose between 50% and 240% during the year.
So could Meta be the stock to outperform in 2024? Let’s take a closer look.
Valuation
Meta can look quite expensive by several metrics. It has a price-to-earning ratio (trailing 12 months (TTM) of 30.7 and a forward earnings ratio of 24.1.
While that does look expensive, there’s a clue here as to why investors are still keen on the stock. And that’s the difference between TTM and forward ratios. In other words, the stock is growing.
And this is also reflected in the forward price/earnings-to-growth ratio of 1.2. The is an earnings metric adjusted for growth — usually the forecast CAGR for three-to-five years — and a ratio below one suggests undervalued conditions.
While this 1.2 ratio may suggest Meta is a little overvalued, investors may be willing to pay a premium for its dominant position in the social media market, as well as its investment in disruptive technologies that may not deliver returns within a three-five-year timespan.
Growth projects
Analysts expect Meta to grow earnings at 19.98% a year, for the coming three-to-five years. That’s a significant growth rate for one of the world’s largest companies.
This includes the monetisation of Reels, which creates short stories similar to TikTok, and Threads, which became the fastest-growing social media application ever.
It’s thought that, if monetised correctly, Threads could generate up to $3bn in revenue over the coming year. That’s huge for a platform that has only just been launched.
Of course, Meta’s entry into this new market highlights an investment risk. If Meta can do it, peers like X (formerly Twitter) can do it too.
Outperforming its peers?
Will Meta outperform its Magnificent Seven peers in 2024? Of course, this isn’t an easy one to forecast. After all, this is a sector full of surprises.
We could however, hypothesise that the stock that represent best value would perform best in 2024. So as these are growth-focused organisations, I’m going to compare them according to the PEG ratio.
Stock
PEG
Alphabet
1.36
Amazon
2
Apple
3.01
Meta
1.2
Microsoft
2.25
Nvidia
0.95
Tesla
4.44
As we can see from this chart, the cheapest stock using the PEG ratio is Nvidia. And the second best value stock is Meta.
So does this mean Nvidia will be the best performing of the Magnificent Seven in 2024? It’s by no means guaranteed, but it’s certainly a good indication.
It’s also the stock with the strongest momentum. And sometimes momentum can be a strong indicator of forward performance.
The post Could Meta stock outperform the rest of the ‘Magnificent Seven’ in 2024? appeared first on The Motley Fool UK.
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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. James Fox has positions in Meta Platforms and Nvidia. The Motley Fool UK has recommended Alphabet, Amazon, Apple, Meta Platforms, Microsoft, and Tesla. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
