Meta shares have been hurt in recent months by negative comments about Facebook’s business model from whistleblower Frances Haugen, according to David Trainer, who covers Meta for investment research firm New Constructs. Haugen appeared before the House of Representatives technology subcommittee earlier this week after accusing the social media giant in October of putting “profit above safety” for its users.
Growing concerns about the impact of Apple Inc.’s data collection rules and supply chain challenges have also contributed to losses, causing Meta’s biggest drop in nearly a year in October.
A weaker-than-expected quarterly report, released in October, also hurt investor sentiment. The company’s third-quarter revenue fell short of consensus estimates, as did its expectations for the fourth quarter. Several analysts cut their price targets for the shares in the wake of the results, although they remained broadly optimistic about the company, citing its long-term growth potential and valuation.
Before the pandemic-driven market crash last year, the company last entered a technical bear market in June 2019, when the U.S. Federal Trade Commission began an investigation into potential antitrust violations.
Still, the stock rallied during the pandemic, rising 42% from January 4 to its September 7 high, outpacing peers like Twitter Inc. and Netflix Inc. They are trading at 20.1 times future earnings, making Meta the cheapest stock among megacap US tech companies.
Newbridge Securities chief market strategist Donald Selkin said Meta appears reasonably valued at current levels, with the decline discounting much of the bad news surrounding Facebook. “It’s worth sticking your finger in the water,” he said in a telephone interview.
The lower valuation does not make the stock more attractive to New Constructs’ Trainer, which sees Meta as the worst-ranked among its megacap peers. He expects the stock to “perennially underperform” for years to come, given the headwinds from Facebook’s legacy business. Trainer said he’s interested in monitoring the company’s shift in focus to the metaverse, especially the pace of the transition as competition in the area increases.
However, Meta has so far kept a following on Wall Street, with more than 80% of analysts recommending investors to buy stocks, according to data compiled by Bloomberg. Analysts’ 12-month median price target of $ 400 implies a potential return of 30% from current levels.