After an incredible run which took its market capitalisation over one trillion dollars, the Meta Platforms (NASDAQ: META) stock price nosedived in 2021. Shares in the social media giant are now available for around $122: that’s about 30% lower than their August 2021 all-time high price of $382.
So, with this stock now available at 2013 prices, the big question is, is it now cheap?
Meta’s historically low P/S ratio
The price-to-sales (P/S) ratio is an excellent place to start. At points, stock in the company formerly known as Facebook has traded for as much as 22 times sales. Right now, the P/S ratio is 2.8.
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META PS Ratio data by YCharts
Meta stock is pretty much as cheap as it has ever been, according to this metric. Right now, it’s trading close to its all-time low P/S ratio of around 2, which was seen a little over a month ago. But it’s worth remembering that tech stocks in general have had a tough time of late. And when share prices drop, but sales don’t match them for pace, P/S ratios fall.
| Big Tech Company | P/S ratio |
| Microsoft | 9.0 |
| Apple | 5.9 |
| Alphabet | 4.6 |
| Netflix | 4.4 |
| Snap | 3.3 |
| Meta | 2.6 |
| Amazon | 1.8 |
Meta looks cheaper than most of what could be considered peers in the big tech space, save Amazon, which has a P/S ratio of 1.8.
Quarterly sales are a concern
A company that can grow its revenues 20 times over in under a decade can support a P/S ratio of 22 when that decade begins. Of course, it wouldn’t have been known at the time, but Meta managed this feat. Now, its sales growth looks to be stalling.
META Revenue (Quarterly) data by YCharts
In the past, if Meta posted a quarterly drop in revenue, the next one would be higher, and the one after that at least equal or higher again. In 2022, A quarterly drop was followed by a higher number, but the following quarter revenue slumped even deeper. Look at a chart of quarterly revenue and it appears this has never happened before.
So, although Meta stock is as cheap as it has ever been based on its P/S ratio, the number might reflect a fair price given the concerns raised about revenue growth.
Margins
The company’s gross margin has been consistent over the years and now sits at 79.38%. However, operating and profit margins started to dip in 2021. At 20.4% and 15.9% respectively, they are still within what can be considered a normal range for the company. However, given that this is happening at the same time as revenues have started to dip, it might be considered a warning.
META Gross Profit Margin (Quarterly) data by YCharts
Meta stock does look historically cheap. But there are also signs that this cheapness might be justified. Advertising has been where the company has traditionally made its money. Privacy changes by Apple have harmed its ability to sell targeted, and more lucrative ads. An EU privacy law announced this week has hamstrung it further. Thousands of workers have been made redundant and the company has ambitious — yet risky and costly — plans for its role in the so-called metaverse.
Meta is changing. It remains to be seen if it can recapture its old form. As for now, the charts are telling me that I should only watch this stock with interest.
