Concerns over slowing growth dampen Meta’s share price

The Motley Fool’s Take

Facebook’s parent company, Meta Platforms Inc., recently traded at a lower price-to-earnings ratio than slower-growing companies such as The Coca-Cola Co. or McDonald’s. Meta’s share price is being held back due to worries about slowing growth, as well as concerns about privacy and regulatory issues. But there’s still a lot to love about the company, which recently changed its name from Facebook to Meta Platforms to reflect a wider range of operations.

For starters, the company owns the social media platforms Facebook, Messenger, Instagram, and WhatsApp, serving over 3 billion people per month and monetizing them through digital advertising, among other things. It also has the Oculus virtual reality ecosystem, with Quest 2 headsets.

Meta Platforms is a cash cow, raking in over $100 billion a year and generating tens of billions of dollars in free cash flow annually. The company has so much cash that it has rewarded its shareholders by buying back many shares. In its third quarter, it repurchased more than $14 billion of its stock and announced a $50 billion increase in its stock buyback program.

(The Motley Fool owns stock and recommended Meta Platforms. Randi Zuckerberg, former director of market development and spokesperson for Facebook, and sister of Meta Platforms CEO Mark Zuckerberg, is a member of the board of directors of The Motley Crazy.)

ask the fool

From CC to Portland, Oregon: I want to invest in a certain mutual fund, but it’s not available through my brokerage. Now what?

The madman responds: Brokerages offer their clients access to hundreds or thousands of mutual funds, but they can always exclude any fund you want. However, you might not be unlucky: sometimes you can simply buy stocks directly from the fund provider, such as Fidelity, Vanguard, Charles Schwab, or one of dozens of other mutual fund companies.

Note that some mutual funds may be closed to new investors during certain times. Mutual funds will sometimes close to new investors if their managers think they have – or will soon have – more money than they can invest efficiently. At times like these, they are right to close instead of just parking money in less promising investments.

If you can invest in the funds you want through your brokerage, this may be more convenient, as you will be able to easily buy and sell online through your existing account, and you can move money between investments quite easily – although your brokerage may charge a commission each time you buy or sell. If you don’t like brokerage fees, you might get a better deal by investing directly in specific funds.

From MB to Manteo, NC: What do you think of equity investment strategies such as selling in May and reinvesting in October?

The madman responds: It’s market timing, which is usually a risky move because the stock market can skyrocket while you’re not there. Nobody knows, after all, what the market will do in the short term. At Motley Fool, we prefer to be long-term investors, aiming to hold our shares for many years.

school of fools

Analyzing a company’s numbers can help you gauge its appeal as an investment. Consider, for example, the return on assets calculation, which shows how productive a company’s assets are by comparing the company’s net income to the money it has tied up in the assets.

An ROA figure can also reveal a company’s capital intensity. A capital-intensive business is one – such as aircraft manufacturers, oil companies, railroads, and even modern farms – that requires heavy investment in assets such as factories, equipment, storefronts , inventory, etc. , consultants and franchisors.

Capital-intensive businesses can be good investments, but capital-light businesses often have larger profit margins, getting more out of every dollar of revenue.

So how do you calculate a company’s return on assets? Take its net income near the bottom of its income statement (sometimes called a statement of operations or income) and divide it by its total assets, shown on its balance sheet. In general, the higher the ROA, the better, but remember that ROA varies by industry.

For example, Starbucks ended its 2021 fiscal year in October with net income of $4.2 billion. Its total assets at the time were $31.4 billion. Divide 4.2 by 31.4 and you’ll get an ROA of 13.4%. Since the net income covers the whole year and the assets reflect the last day of the fiscal year, you can instead average the total assets of the end of fiscal year 2020 and the end of fiscal year 2021 , to reflect average assets in fiscal year 2021. That number is $30.4 billion, and dividing $4.2 billion by that yields an ROA of 13.8%, or nearly 14%.

A 14% ROA would mean that Starbucks was generating 14 cents of profit on every dollar of its assets. You can compare this with the ROAs of the previous year to see if it is increasing or decreasing, and with the ROAs of its peers. You can find ROAs calculated for you on websites that feature stock market data, such as Morningstar.com.

My dumbest investment

From HR, online: My dumbest investment? Well, I saw on the charts that a certain penny stock was climbing rapidly from 20 cents per share, so I bought a bunch of shares at 38 cents apiece. The stock rose to 40 cents per share – and the next day it fell to 2 cents. I bet a million people sold and made a 100% profit, while I looked like a fool. It’s been hovering around 2 cents since, leaving me with a loss of $395.

The madman responds: You may have fallen victim to a common “pump-and-dump” penny stock scheme.

Penny stocks are those that trade for less than about $5 per share. They are often tied to fragile businesses and can be easily manipulated. Schemers can promote a penny stock online or via a newsletter, tricking gullible people into buying stocks because they seem so cheap – and, often, because big hits are supposed to happen. be around the corner. Buying drives up the stock price, then the schemers sell their shares, driving the price down and wiping out many investors.

Never assume that a low-priced stock is a good deal. Many penny stocks are falling to near zero, while a $500 per share stock could be undervalued and on its way to $1,000 or more. For best results, avoid penny stocks – and always research companies well before investing in them.

Who am I?

My roots date back to 1876, when my German namesake and two partners founded me and launched my first product, a silicate-based detergent. In 1907, I launched Persil, the world’s first self-acting laundry detergent that didn’t require hand scrubbing. Today, based in Düsseldorf and with a recent market value of nearly $37 billion, I am a global leader in adhesives, beauty care, laundry products and home care. My brands include Dial, Loctite, Persil, Schwarzkopf and Technomelt. I employ more than 50,000 people, around 85% of whom work outside Germany. I make about $22 billion a year. Who am I?

Don’t remember the trivial question from last week? Find it here.

Answer to last week’s quiz: Visa

Karen J. Nelson