Trading near its all-time high, is Meta Platforms stock still a good buy?

After rising 194% in 2023, the stock Meta platforms (META 0.60%) continues to grow even more this year, with the social media stock up another 47% since January. Meta has been one of the most popular tech stocks to own over the past two years, and its valuation is now at record highs, with a market cap of more than $1.3 trillion.

Meta owns some popular social networking apps in WhatsApp, Facebook and Instagram. But is the stock’s current valuation justified and can it go higher or has it peaked?

Why meta platforms could go higher

The bullish case for Meta platforms is that with an impressive 3.3 billion daily active people, they possess a lot of value for marketers trying to reach a specific target market.

And Meta’s business has been booming in recent quarters. After a small slowdown in the growth rate in 2022, business has recovered, with the company now generating growth rates of over 20%.

META Revenue (Trimely YoY Growth) data by YCharts

In its most recent quarterly results (ended June 30), Meta Platforms ad impressions were up 10% year-over-year, and cost per ad was also up 10%. What was even more impressive than the increase in revenue was the improvement in the bottom line. Net income totaled $13.5 billion last quarter, up 73% from last year.

If the Meta continues to deliver this kind of growth, it’s hard to imagine the stock slowing down, especially since it trades at a relatively modest 27 times earnings; the average technology stock trades at an earnings multiple of 41.

Why the stock might struggle

Things are going well for Meta Platforms stock right now, but there could be trouble in the future. The ad market can be volatile, and if worries about a recession start to grow and advertisers pull back on spending, the company’s impressive growth rate could start to slide, as it did in 2022. And unless the government ends up banning TikTok. , which could throw a wrench in Meta’s promising growth opportunities.

For now, the company’s operations are going well, with strong ad revenue and profits from its Family of Apps business segment (which includes Instagram, Facebook, WhatsApp and Messenger) able to eclipse losses from its cash-burning Reality Labs division (which focuses on metaverse). But the costs for this continue to be high. If the ad business slows and those profits fall, there will be more attention on the struggling Reality Labs business, which suffered a $4.5 billion operating loss last quarter. The Meta Family of Applications segment, by comparison, generated $19.3 billion in revenue.

In the long term, there are also questions about privacy and whether Meta is doing enough to protect children. Dozens of states are suing Meta for collecting data on children under 13 without their parents’ consent. And concerns are growing about the mental health risks associated with its social media platforms. That may not sound quantifiable in terms of lost revenue, but Meta has garnered plenty of bad press over the years, and the attention surrounding its addictive apps isn’t going away.

Should You Buy Meta Platforms Stock?

Meta stocks are doing well, but this is also in ideal market conditions. It invests in artificial intelligence and benefits from this train, its advertising business is also strong, but this with X (formerly Twitter) is no longer the same kind of platform as before Elon Musk acquired it, and it is also , a TikTok ban likely. keeping many advertisers away from Meta’s biggest rival.

Everything is lining up perfectly for the Meta platforms right now. But the stock’s fortunes could quickly reverse in a slowing ad market (if a recession hits). And while the long-term risks may not seem quantifiable right now, they shouldn’t be ignored either.

Meta’s valuation may not seem that expensive, but that could change if revenue and earnings start to stumble. While its share price may still climb a bit higher in the near future, this is a stock I would avoid as the business faces an uncertain road ahead and its ability to withstand serious competition remains questionable.