It’s no surprise that most investors desire high returns from the stocks that make it into their portfolios. The ideal situation, to be more specific, is to find a business that can outperform the S&P 500, a widely followed benchmark.
This is precisely what Meta Platforms(NASDAQ: META) has done, and then some. Shares are up an impressive 178% since January 2020. That market-thumping return certainly draws excitement from the investment community.
However, what investors care about is the future. Can this unstoppable “Magnificent Seven” stock double in the next five years?
Meta’s position atop the internet sector is supported by some notable characteristics that make it clear just how outstanding the company really is. Investors won’t struggle to find a clear economic moat. In Meta’s case, it possesses insanely powerful network effects.
This is true when you look closely at its family of apps — which include Facebook, Instagram, WhatsApp, Messenger, and Threads — which generated 99% of total revenue in the third quarter of 2024.
When a product or service gets better with more users and usage, it could be a result of network effects. Meta counts 3.29 billion daily active users across its social media apps. People want to use them because everyone they know uses them, and there are virtually an unlimited number of connections that can be made.
This makes it just about impossible for anyone to dethrone Meta’s industry position. Sure, any well-funded tech entrepreneur could launch a new social media app. But to get people and businesses to sign up for accounts and start to engage more could be an impossible task.
Another wonderful quality is Meta’s incredible profitability. It raked in net income of $15.7 billion on total sales of $40.6 billion in the third quarter, leading to robust free cash flow that fuels dividends and share repurchases. This boosts investor returns.
What’s really remarkable is how the company’s operating margin went from 25% in 2022 to 43% in the third quarter of 2024. Despite significant expense controls, revenue still jumped 47% between the third quarter of 2022 and the third quarter of 2024. This tells me that Meta has tremendous earnings power.
Even with trailing-12-month revenue of $156 billion, it’s easy to be optimistic about the company’s growth prospects. The consensus view among Wall Street analysts is that sales and earnings per share will increase at an annualized rate of 13.7% and 12.9% between 2024 and 2026.
Given the historical trajectory of the business, it’s not unreasonable to expect this double-digit pace to continue through the end of this decade. That’s because the worldwide digital ad market is poised for strong growth. And Meta is able to serve up more ad impressions at higher average prices per ad. This is what happened in the third quarter.
Meta plans to have “significant capital expenditures growth in 2025,” according to Chief Financial Officer Susan Li. That’s compared to $37 billion to $40 billion last year.
A lot of this includes focused investments to boost the company’s network infrastructure to support artificial intelligence ambitions. This could add more growth potential — Meta isn’t resting on its laurels and aims to be at the forefront of what many industry executives believe is the next game-changing technology.
Meta has been a winner in the past. Even so, shares still trade at a reasonable forward price-to-earnings ratio (P/E) of 24.2 today. For comparison’s sake, the tech-heavy Nasdaq-100 index‘s forward P/E multiple of 25.1 is above Meta’s.
It’s difficult to gauge why Meta shares still trade at such a compelling valuation, especially when compared to most other Magnificent Seven peers, and despite the company having reported such stellar financial performance in the past several quarters. But this presents an opportunity for investors.
Given the prospects of strong profit growth, coupled with a compelling valuation, I wouldn’t be surprised to see Meta’s stock double between now and 2030.
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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. Neil Patel and his clients have 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.
Can This Unstoppable Stock Double in 5 Years? was originally published by The Motley Fool
