Should I double down on Meta shares?

Meta (NASDAQ: FB) shares tanked last week after the Facebook owner published its results for the fourth quarter of 2021. 

The stock chalked up the single biggest one-day market capitalisation loss in history, losing $230bn after it warned investors that growth could slow going forward.

It looks as if this came as a surprise to many investors, who had become accustomed to its market-beating performance. 

However, I think this could be an opportunity for long-term investors like myself. 

Attractive qualities

While Facebook did disappoint the market with its latest earnings release, the company still has a dominant market position in the social media space. What’s more, its online advertising division is one of the largest globally, and the business generates vast amounts of cash flow, the lifeblood of any organisation. 

I do not already own the stock in my portfolio. However, I do have exposure to the business through investment funds. And as Meta shares plunge, I have been wondering if I should dive deeper into the investment and buy a direct position in the company. 

Outstanding growth

Over the past five years, Facebook and its parent organisation have grown to become one of the most sought-after businesses on the US market. It is clear to me why investors have been clamouring to buy the stock. The company’s growth has been nothing short of outstanding since 2016. Earnings per share have increased to the compound annual rate of 32%.

On top of this, the corporation is highly cash generative. In 2021, the enterprise generated a free cash flow per share of $13.70. That puts the stock on a current free cash flow yield of 6.1%.

This looks incredibly cheap for a business with an operating profit margin of nearly 40%.

Other technology companies are trading at a free cash flow yield of around 3%, implying that Meta shares are undervalued by as much as 100%. 

Of course, this figure is just an estimate. There is no guarantee the stock will ever trade back up to the sector average. Nevertheless, I think the numbers illustrate the potential here. 

Headwinds for Meta shares

The company’s one big challenge over the next couple of years is maintaining its historical growth rate. Unfortunately, I think it is likely growth will slow in the years ahead. The enterprise has already said as much in its latest earnings release. Privacy issues and competitive forces mean that the platform is no longer as attractive to advertisers as it once was. 

That said, Meta is not shrinking. It is just not growing as fast. There is a big difference. This is where I believe the opportunity lies. 

With this being the case, I plan to boost the stock’s presence in my portfolio. I think the market has overreacted to the company’s slowdown. This is a fantastic opportunity for me to buy into a highly cash generative, cheap enterprise that still has market-beating profit margins.