A company’s “normal” or “fair” P/E ratio depends on factors such as expected future earnings growth and risk. Higher growth prospects or lower risk typically warrant a higher P/E ratio. More mature or riskier companies tend to have lower multiples.

Currently, Meta Platforms trades at a P/E ratio of 27.9x. For comparison, the industry average P/E for Interactive Media and Services is 16.5x, while the peer group average is 36.3x. This positions Meta above the industry norm but below many of its closest peers.

Simply Wall St’s proprietary “Fair Ratio” model estimates Meta’s fair P/E at 40.1x. Unlike conventional benchmarks, this fair value considers the company’s earnings growth outlook, profit margins, market cap, industry dynamics, and risk profile. This provides a more tailored and insightful measure than just peer or industry comparisons.

Since Meta’s current P/E ratio (27.9x) is notably below its Fair Ratio (40.1x), the stock appears undervalued by this approach. This suggests investors may be underestimating its long-term growth and profitability.

Result: UNDERVALUED

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Earlier we mentioned that there’s an even better way to understand valuation, so let’s introduce you to Narratives. Narratives are a simple and powerful way to invest. They combine your own perspective on Meta Platform’s future with your assumptions about key numbers like fair value, future revenue, earnings, and margins, all in a single, evolving story. By connecting the company’s story to a financial forecast and then linking that to a fair value estimate, Narratives let you see the “why” behind the numbers, not just the numbers themselves.

On Simply Wall St’s Community page, millions of investors use Narratives to make analysis both easier and more personal. Narratives help you decide when to buy or sell by showing whether your Fair Value is above or below the current Price, and they update dynamically as news or earnings come in so your decision-making always reflects what’s happening now.

For example, one investor might build a bullish Narrative for Meta, forecasting surging AI-driven ad revenues and arriving at a fair value of $1,086 per share. Another might take a more cautious view of regulatory and spending risks, estimating Meta’s fair value at only $658.

For Meta Platforms, here are previews of two leading Meta Platforms Narratives:

• 🐂 Meta Platforms Bull Case

  Fair Value: $848.43

  Currently undervalued by approximately 23.6%

  Revenue Growth Rate: 15.8%

  • AI-driven ad personalization and new monetization initiatives are expected to drive strong revenue growth and operating leverage across Meta’s platforms.

  • Investment in AI and platform infrastructure is boosting user engagement, positioning Meta to capture a greater share of online advertising and commerce as digital adoption grows worldwide.

  • Key risks include elevated spending on AI and Reality Labs, ongoing regulatory scrutiny (especially in Europe), and the challenge of sustaining high growth and margins in a more competitive landscape.

• 🐻 Meta Platforms Bear Case

  Fair Value: $538.09

  Currently overvalued by approximately 20.4%

  Revenue Growth Rate: 10.5%

  • Meta is expected to sustain growth through social media dominance, AI-driven advertising, and hardware but faces major execution risk in turning the Metaverse and AR/VR bets profitable.

  • Significant capital expenditures for AI infrastructure and continued losses in Reality Labs raise questions on cash flow and whether diversification efforts are sufficient to offset dependency on advertising revenue.

  • Intensifying regulatory scrutiny, potential data privacy and antitrust challenges, and macroeconomic headwinds in digital advertising could pressure Meta’s business model and profitability in the years ahead.

Do you think there’s more to the story for Meta Platforms? Head over to our Community to see what others are saying!

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

Companies discussed in this article include META.

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