Is it too late to buy Meta Platforms stock?

Meta Platforms (FINISH 0.30%) The company’s shares have been in good shape on the market over the past year, posting solid gains of 74% at the time of writing and outperforming technology stocks Nasdaq-100 Technology Sector the index rose 22% by a wide margin. The social media giant’s impressive gains can be attributed to solid revenue and profit growth over the past few quarters.

Meta seems to be gaining ground in the lucrative digital advertising space thanks to its focus on integrating advanced tools like artificial intelligence (AI) to help advertisers achieve higher profits. But what if you are one of those investors who missed the Meta gravy train? Is it a good idea to buy these tech stocks now in anticipation of higher profits? Let’s find out.

Analysts do not expect Meta Platforms shares to generate huge profits next year

According to 68 analysts covering Meta, the stock has a median 12-month price target of $575, which suggests an upside of just 9% from current levels. Notably, 85% of analysts rate Meta stock a buy, and the Street-high price target of $660 suggests a 25% upside for the stock.

However, a closer look at Meta’s prospects and the pace at which it is growing will show us that it could easily outperform Wall Street expectations. The company’s revenue in the first six months of 2024 increased nearly 25% year over year to $75.5 billion. What’s more, Meta’s adjusted earnings during the period increased 90% year over year to $9.86 per share.

Analysts expect Meta to end 2024 with a 20% increase in revenue to $161.6 billion. However, the company’s growth rate in the first half of the year suggests it’s on track to exceed that. More importantly, Meta’s growth rate clearly tells us the company is taking a larger share of the digital advertising market.

According to eMarketer, digital ad spending is expected to grow 12.2% in 2024, up slightly from the 12% growth seen last year. Meta’s 16% revenue growth in 2023 suggests that the company also outperformed the digital ad industry last year, and that trend continues into 2024. The company is delivering more ad impressions through its family of apps, and the good news is that advertisers are spending more money on its platform.

For example, in Q2 2024, ad impressions on the Meta family of apps increased by 10% compared to the same period last year. The average price per ad also saw a similar increase, which explains why the company saw solid growth in both its top and bottom lines. The reason advertisers are willing to spend more money on the Meta platform is because its AI tools help them get a better return on investment.

Nearly all of the company’s advertising clients use at least one of its AI Advantage+ suite of advertising tools to improve audience targeting and ad placement. More importantly, a study of over 1 million U.S. advertisers conducted by Meta found that there was a 12% increase in return on ad spend on the company’s platform from 2022.

The company’s focus on delivering AI-recommended content to users and enabling businesses to chat with customers using AI will likely open up more growth opportunities in the future and help it maintain its impressive growth. After all, AI adoption in the digital advertising market is expected to grow at a compound annual rate of 31% through 2027, and Meta is doing the right thing by increasingly adopting the technology to stay ahead of trends in the digital advertising space.

Investors should also pay attention to forecasts that the digital advertising market will achieve double-digit growth rates over the next few years, growing by 11.4% in 2025 and 10.4% in 2026. Meta’s growth estimates for the next few years indicate that it is expected to grow at a faster pace than the digital advertising market.

META’s revenue estimates for the current fiscal year as reported by YCharts

The valuation is too good to ignore

While Meta Platforms stock has posted impressive gains over the past year, it still trades at an attractive 26 times prior-year earnings, a discount to the average US tech sector price-to-earnings multiple of 44. The forward earnings multiple is even more attractive at 22, indicating stronger net earnings.

As the chart shows, Meta’s earnings per share should grow at a healthy double-digit rate over the next few years.

META EPS estimates for the current fiscal year as reported by YCharts

Assuming the company’s earnings actually rise to $27.97 per share after a few years, and that it continues to trade at 26 times earnings during that time, the stock could hit $727. That would be a 38% increase from current levels.

However, don’t be surprised if this tech stock ends up delivering higher profits as the market could reward it with a higher earnings multiple due to its stronger growth. Therefore, investors who have not yet bought Meta Platforms should consider doing so before it’s too late.

Randi Zuckerberg, former chief market development officer and spokeswoman for Facebook and sister of Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. Harsh Chauhan has no ownership stake in any of the stocks mentioned. The Motley Fool owns and recommends Meta Platforms. The Motley Fool has a disclosure policy.