Is Meta Platforms Stock a Buy in the Second Half of 2024?

It's been a roller-coaster ride over the last few years for investors in Meta Platforms (NASDAQ: META) .

Just two years ago, the stock was struggling -- it fell to a low not seen since 2016 -- as the company faced a series of issues, such as slower growth and growing losses in its metaverse division. Today, the stock trades close to its all-time high as the company's turnaround plan begins to bear fruit.

But for latecomers who missed the rally in the last 12 months, is now still a good time to buy the stock?

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Meta made a remarkable comeback in 2023

Investors were used to Meta reporting ever-growing revenue and profitability until the end of 2021. That quarter, operating profit fell 1% year over year.

While the bulls were still optimistic about the company's prospects, Meta's performance in the next few quarters shattered their hope. Operating income fell 25%, 32%, 46%, and 49% in the next four quarters. The tech giant ended 2022 with 1% lower revenue and a disappointing 41% fall in net profit.

Meta's management team, in responding to the poor performance, took a series of decisive moves to get the giant back into shape. These efforts included massive layoffs, cost optimization, and refocusing attention on critical areas such as advertising and artificial intelligence (AI). And the result was incredible.

In less than a year, revenue was back in growth mode (up 16% year over year), and net income improved 69% to the high achieved in 2021. On top of that, operational metrics improved across the board. For instance, daily active users grew 8% to 3.19 billion while monthly active users improved 6% to 3.98 billion.

For a company as large as Meta, its turnaround speed and outcome impressed even the bears. The only downside was that the tech giant continued to incur heavy losses -- around 26% of its operating profits from advertising -- on its metaverse division.

Meta started 2024 with a bang

The bears doubtful of Meta's turnaround in 2023 would have been blown away by the giant's first-quarter result in 2024.

Revenue came in at $36.4 billion, an incredible 27% growth rate, while net income more than doubled from $5.7 billion to $12.4 billion. Net income grew faster than revenue as Meta optimized its cost structure. For instance, head count fell 10% year over year to just under 70,000 in the first quarter.

Daily active users reached a new high of 3.24 billion, up 7% year over year. Ad impressions and average price per ad grew by 20% and 6%, respectively. In other words, the tech giant is firing on all cylinders.

Meta's solid financial performance means it is now better positioned to invest in artificial intelligence and the metaverse. For example, its guided capital expenditure for 2024 is $35 billion to 40 billion, up from the previous guidance of $30 billion to 37 billion, in order to invest in AI-related infrastructure. It also guided for its metaverse division losses to increase meaningfully compared to 2023.

While Meta's huge investments might again raise investors' concerns, the good news is that the company is much better financially positioned to make those investments.

But the stock is not in a bargain territory

When Meta's stock fell to its multiple-year low in 2022, it had a price-to-earnings (P/E) ratio of 8.5 times. Then, investors were concerned whether the company was a value trap.

Today, the stock trades at 28.7 times the P/E ratio, above its five-year average P/E ratio of 25.9 times. The pendulum has swung from pessimism to optimism.

While early investors benefited from the share price appreciation -- thanks to higher stock valuation and higher profits -- late investors have to pay a hefty premium to own the stock.

There is nothing wrong with paying a premium for a stock, especially for a company that can sustain its solid performance. However, if the company fails to deliver according to investors' expectations, its premium valuation can quickly contract to reflect the new reality.

What it means for investors

Meta's recent turnaround has been remarkable, evidenced by solid growth in the top and bottom lines. While it continues to report heavy losses in the metaverse division, growing profitability puts it in an excellent position to do so.

Still, the stock is not an obvious buy since its outperformance in the last 12 months means it trades at a rich valuation. While it might not be wise for existing investors to sell the stock (it's usually wise to hold on to a winning stock unless it's terribly overvalued), it's probably too risky for new investors to buy it today.

In short, the stock is a hold.

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. Lawrence Nga has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Meta Platforms. The Motley Fool has a disclosure policy .