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Meta Platforms‘ (NASDAQ: META) stock has really underperformed. Since mid-August last year, it’s fallen from around $800 to $560 – a drop of around 30%.
Is it time to add this ‘Magnificent 7’ name to my ISA? Let’s discuss.
Meta shares do look cheap right now. With analysts expecting earnings per share of $32.90 for 2026, we’re looking at a price-to-earnings (P/E) ratio of just 17. That’s a low earnings multiple for a Mag 7 company. It’s actually below the US market average.
So there appears to be some value on offer at first glance. Especially when you consider this company’s dominance in the social media space.
The valuation also looks low relative to the expected level of growth here. This year, analysts expect revenue to come in at around $253bn – an increase of 26% year on year.
What’s the market telling us?
Of course, when a stock has a low valuation, it’s worth digging deeper to find out why. Because a low multiple can signal that the market sees some risks or red flags.
In this case, I see a few issues. For a start, there’s the fact that Meta’s spending money at an unprecedented scale in an effort to become more of an AI company.
This year, it’s expected to spend up to $145bn. The problem is that there’s no guarantee this will pay off in the long run as no one really knows how the AI revolution will play out.
One thing to note here is that unlike other Mag 7 companies such as Amazon and Alphabet, Meta doesn’t offer cloud computing services. This puts it at a major disadvantage.
Because when these other businesses spend tens of billions of dollars buying Nvidia or AMD GPUs or building data centres, they can absorb the blow by renting out their compute power to enterprise customers at a premium. Meta isn’t able to do this.
More uncertainty
Another issue is that regulators are massively cracking down on the company’s social media platforms. For example, here in the UK, the government recently announced that from spring 2027, under-16s will no longer be able to use Facebook and Instagram.
Other countries that have made the same move or are thinking about doing so include Australia, Indonesia, France, and Spain. So this issue can’t be ignored – it could have an impact on the company’s growth.
Finally, there’s the fact that Meta’s facing thousands of lawsuits. These are mainly related to child safety and platform addictiveness. I don’t expect them to wipe the company out given how much cash flow it generates. But they do add some uncertainty.
The bull case
So there are quite a few issues to be aware of here. Ultimately, things look a bit messy at the moment.
That said, on the plus side, we have a company that is:
- Led by a founder with a great track record.
- One of the biggest players in the fast-growing digital advertising market.
- Using AI across its platforms very effectively today.
- Launching new AI services and tools.
So there are definitely reasons to be bullish.
Will I buy?
For me though, the negative issues highlighted above outweigh the bull case. So I’m not going to buy the stock today. Others might see things differently though. For contrarian investors, the shares might be worth considering.
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Edward Sheldon owns shares in Nvidia, Amazon, and Alphabet
This story originally appeared on Motley Fool
