This “Magnificent Seven” stock is up 577% over the past decade, and is still one of the best bargains in the S&P 500

Metaplatforms (NASDAQ: META) is up nearly 2,000% since its 2012 IPO, but for all its success, it’s been a hated stock for much of the way.

Throughout its history, the company has been dogged by scandals, boycotts, billion-dollar fines and antitrust attacks. It has been ridiculed for strategic decisions like its metaverse push and criticized for the addictive nature of its product.

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Despite all that, Meta has rewarded investors with monstrous gains. The stock is up 577% over the past ten years, as the chart below shows.

Meta’s strengths were on display in its latest earnings report, sending shares up 10.4% on Thursday.

Revenue rose 24% to $59.9 billion, with margins narrowing as spending on infrastructure and other areas increased, although operating income still rose 6% to $24.7 billion.

Management also pleased investors with its guidance, calling for revenue of $53.5 billion to $56.5 billion in the first quarter, implying revenue growth of 30%, which would be its fastest growth rate in five years. CFO Susan Li credited its AI-driven investments in advertising, which improved targeting and measurement, and even added a generative AI tool to help advertisers create ads.

Even after jumping 10% on the earnings report, the stock still looks like a bargain.

A student reading a book in front of a computer — Image source: Getty Images.

Adjusting for a Big Beautiful Bill tax valuation charge, Meta generated $74.7 billion in net income last year, or $29.04 in earnings per share.

Based on this profit figure, the shares are currently trading aa price-income ratio of 25.4, which makes it cheaper than the S&P 500which trades at a P/E of 28.1, and any of its “Magnificent Seven” peers.

NVDA PE Ratio Chart — PE ratio of NVDA data for YCharts

As you can see, Meta trades at a discount of more than 20% to all of its “Magnificent Seven” peers based on the numbers above, even though revenue is currently growing faster than all but those companies Nvidia.

Meta has historically traded at a discount, and no other company of its size has grown as fast as it has at a relatively low valuation. The chart below shows its revenue growth rate and P/E ratio over the past eight years.

META PE Ratio Chart — META PE relationship data for YCharts

As you can see, Meta’s P/E ratio has averaged 26 over that period, which is roughly in line with the S&P 500, while its revenue growth has averaged 23%. You would be hard-pressed to find another stock that has grown so fast at such a low level for so many years.

It seems that the market does not know how to value Metaplatforms, and the same could be said alphabetwhich, until a recent increase, had also traded at a significant discount.

These companies have two of the widest economic moats in the world and the revenue and profit margins to prove it. They have made digital advertising a duopoly, but they have rated themselves as mid-sized companies. They are software companies, but trade at a steep discount to software-as-a-service (SaaS) stocks, which are typically valued at a multiple of sales rather than earnings.

However, Meta and Alphabet have something more valuable than a subscription business software product. They have platforms that billions of users engage with every day, sometimes for hours at a time, and they’ve developed highly intelligent advertising models around those platforms that make billions in high-margin profits and have no significant direct competition.

If you own a stock, you usually want the valuation to go up, as this will increase your return.

However, Warren Buffett once argued that we should want the price of a stock to languish so that we can buy more of it and the company can buy back its stock at a good price. Low prices also favor net buyers of stocks, allowing you to add to your portfolio at good prices.

Meta’s modest valuation hasn’t stopped the stock from delivering outsized returns and lessens the stock’s downside risk if the broader market falls.

It’s good for investors that stocks continue to be misunderstood and undervalued. It will only help fuel your long-term gains.

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Jeremy Bowman has positions in Meta Platforms and Nvidia. The Motley Fool has positions in and recommends Alphabet, Meta Platforms and Nvidia. The Motley Fool has one disclosure policy.

This “Magnificent Seven” stock is up 577% over the past decade, and is still one of the best bargains in the S&P 500 was originally published by The Motley Fool

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