While the broad market digests the latest on inflation and interest rates, resulting in a mixed performance, Meta Platforms (NASDAQ:META) stock continues to make a comeback.
Just recently hitting a new 52-week high, META stock has gained nearly 160% since the start of 2023.
In the coming year, shares in this “Magnificent Seven” stock could add significantly to these recent gains.
Some skeptics may say that the Facebook and Instagram parent has bounced back too far, too fast.
However, there has been a strong justification for META stock’s comeback.
Over the past twelve months, the company has successfully reduced operating costs, experienced a rebound in digital ad demand, and has started to capitalize on recent advances in artificial intelligence technology.
With these positives (plus a few others) still in its corner, more runway lies ahead.
Why Bullishness for META Stock Persists
While recovering alongside Meta Platforms, many “Magnificent Seven” stocks have experienced a slide in price since the summer.
Blame this on fading “AI mania,” plus renewed worries about interest rates, specifically the impact of higher rates on growth stock valuations and economic growth.
Yet given why this company isn’t immune to these macro issues, why has bullishness for META stock been so much more persistent?
While not for certain, a big reason for this may be the fact that, compared to other tech high-fliers, the market has not gotten too carried away, in its re-rating of shares.
Even after a triple-digit run higher, Meta Platforms continues to trade at a reasonable valuation of 24.3 times forward earnings. Such a multiple is sustainable, even in a period of elevated interest rates, for two reasons.
First, Meta’s high margins and deep economic moat justify a premium valuation. Second, future earnings growth forecasts help to back a mid-20s multiple as well.
At least, that’s the takeaway, when you consider various recent and upcoming developments. These suggest this company can not only meet, but beat, current earnings forecasts.
Two New Ways to ‘Level Up’
The impact of cost reductions and rebounding digital ad market demand could have a less noticeable impact on future results for Meta Platforms, but several other potential catalysts could help make up the difference. In turn, leading to a further moving of the needle for META stock.
Here’s a good example: the recent unveiling of generative AI tools for the company’s ad manager software. Besides benefiting advertisers making ad buys across the social media giant’s portfolio of properties, these tools could help further enhance monetization.
Also, while digital advertising is set to remain an important element in the overall Meta Platforms story, the tech giant is making a move that could help diversify and grow its overall revenue.
That would be recently-announced plans to offer ad-free, subscription-based memberships for Facebook and Instagram. For now, Meta is only launching this service in Europe, where it is experiencing regulatory scrutiny related to personalized advertising.
However, in time, if this alternative revenue model proves successful, the company could launch it in other regions, including the United States.
That’s not all. Don’t forget, too, that Meta also continues to make progress monetizing other new applications/products, such as its Reels short-form video application.
A Path Back to its All-Time Closing High, Then Onto New Highs
If the aforementioned and other factors help META meet/beat earnings expectations in the quarters ahead, a return to its all-time closing high ($382.18 per share) well within reach.
A move to prices well north of $400 per share within a reasonable timeframe is also very attainable. Two years from now, annual earnings could come near $20 per share, according to analyst consensus.
If the stock merely maintains its current earnings multiple, that implies a valuation of around $486 per share.
Consider that, within two years, interest rates will have likely come down from their current high levels. This could help justify multiple expansion for META. With this, hitting prices above $500 per share by 2025 isn’t a far-fetched idea, either.
Poised to stay a winner, consider META stock a buy, whether now, or on any weakness.
META stock earns an A rating in Portfolio Grader.
On the date of publication, neither Louis Navellier nor the InvestorPlace Research Staff member primarily responsible for this article held (either directly or indirectly) any positions in the securities mentioned in this article.