Meta Platforms stock just hit a new all-time high. Here’s why I still buy.

With S&P 500 index hitting a new all-time high, it’s no surprise that many of its constituents are doing the same. One of the largest companies in that index is Meta platforms (META 0.06%)the parent company of Facebook, Instagram and other social media sites.

Investors may avoid buying stocks that have hit fresh highs. However, this is a mistake because these companies usually perform at a very high level if they make new highs. The meta falls into this category and I think the latest run of new records could be extended for quite some time.

Meta Platforms is primarily an advertising business

Meta Platforms runs some of the most successful social media sites, but some may be confused by how it makes so much money. Since these platforms are free to use, investors must realize that the users are the products being sold. In Meta’s case, it sells advertising that allows advertisers to target users based on demographics, preferences and location.

This highly successful business model has allowed Meta stock to reach new heights. In the second quarter of 2024, Meta’s advertising segment generated $38.3 billion in revenue, up 22% year over year. This accounted for 98% of Meta’s total revenue, so it clearly controls the direction of the company.

It’s also highly profitable, with Meta’s Family of Apps division generating $19.3 billion in operating income in the quarter ended June 30. If this was the only part of Meta’s business, the stock would likely be much higher as it would have more resources to fall back on. shareholders in the form of share buybacks or dividends.

However, Meta uses some of that money to fund its other endeavors.

Meta’s new product has the potential to be a hit

Another part of Meta is the Reality Labs division, the home of its augmented and virtual reality projects. While consumers have seen some of these devices hit the market as gaming headsets, a lot of money is being invested in Meta’s quest to create everyday smart glasses that can be used for multiple tasks.

The public finally got to see what these glasses look like with Meta’s demo of the Orion augmented reality glasses. The use case for these glasses remains to be seen, but investors now have an idea of ​​what Meta is spending their money on, which gives them hope that they will eventually see some return on that investment.

Image source: Meta Platforms.

We’re probably a long way from seeing significant revenue generated by these devices — the Reality Labs division lost $4.5 billion in the second quarter — but it gives an idea of ​​where Meta is headed.

However, I still think this is not a factor in an investment case for Meta, as its core advertising business is still excelling. If these Orion glasses prove to be a success, then it will be a cherry on top.

Despite its fresh highs, the stock is still valued at a point where it is not overvalued.

META PE Ratio data (before) by YCharts

Meta’s stock is valued at the highest point it’s been all year on a forward price-to-earnings (P/E) basis, but it’s still cheaper than many companies it’s typically compared to in the big technological space.

Data source: YCharts. YoY = year over year.

Meta Platforms is an optimal compromise between its valuation and growth. This will likely cause it to consistently hit new all-time highs for the foreseeable future, making it a top stock to buy now.