McGrew Valuation suggests significant upside….
As investors, we’re always on the hunt for stocks that offer both growth potential and value. Meta Platforms, Inc. (META), the tech giant behind Facebook, Instagram, and WhatsApp, has been a polarizing name in recent years. With its pivot to the metaverse, massive AI investments, and regulatory scrutiny, is META a screaming buy or an overhyped tech stock? In this analysis, we’ll evaluate META’s intrinsic value using two robust valuation methods—Warren Buffett’s Discounted Cash Flow (DCF) and the McGrew Valuation Method—and explore its profitability through trailing 12-month (TTM) Return on Equity (ROE) and Return on Net Tangible Equity (ROTE). Buckle up for a data-driven journey into whether META deserves a spot in your portfolio. #Investing #StockMarket #META
Intrinsic Value: Buffett vs. McGrew Valuation Methods
To gauge META’s true worth, we applied two sophisticated valuation models: the Buffett Valuation Method, inspired by the Oracle of Omaha, and the McGrew Valuation Method, which accounts for dynamic growth rates in high-growth companies. Both methods rely on Free Cash Flow (FCF), shares outstanding, and growth projections, using five years of financial data (2020–2024) sourced from META’s annual cash flow statements. The last closing price, as of June 18, 2025, is assumed to be $695.77, though we note the limitation of not verifying this via real-time sources like Yahoo Finance due to data constraints.
Buffett Valuation: A Conservative Approach
The Buffett method uses a constant growth rate based on the 5-year FCF Compound Annual Growth Rate (CAGR). META’s FCF grew from $23.584 billion in 2020 to $54.072 billion in 2024, yielding a 5-year CAGR of 23.17%. Since this exceeds 10%, META qualifies as a growth stock, and we applied a 10% growth rate for Years 1–10, a 2.5% perpetual growth rate, and an 8% discount rate (4% Treasury + 4% premium). Using the 2024 FCF of $54.072 billion and average shares outstanding of 2.529 billion, we projected FCF for 10 years, calculated a terminal value of $2.614 trillion, and discounted all cash flows to present value.
The result? An intrinsic value per share of $707.85. Applying a 25% margin of safety, the target price becomes $530.89. Compared to the closing price of $695.77, META falls within the “Hold” range (94%–135% of intrinsic value), suggesting it’s fairly valued under conservative growth assumptions. #ValueInvesting #Buffett
McGrew Valuation: Capturing Growth Dynamics
The McGrew method is tailored for growth stocks like META, allowing for a declining growth rate to reflect realistic long-term trends. Starting with the 23.17% CAGR in Year 1, we linearly reduced the growth rate by 2.195% annually to reach 10% by Year 7, holding it steady through Year 10. The same 2.5% perpetual growth rate and 8% discount rate were applied. Projecting FCF from the 2024 base, we calculated a terminal value of $3.908 trillion and discounted all cash flows.
This yielded an intrinsic value per share of $1,085.07, with a 25% margin of safety price of $813.80. Against the $695.77 closing price, META is a Screaming Buy, as it trades below 75% of the intrinsic value. The McGrew method’s higher valuation reflects META’s robust FCF growth, making it more optimistic than the Buffett approach. #GrowthStocks #TechInvesting
Why the Difference?
The Buffett method’s conservative 10% growth rate caps META’s potential, while the McGrew method leverages the 23.17% CAGR initially, better capturing META’s recent performance. The significant gap ($707.85 vs. $1,085.07) highlights the importance of growth assumptions in valuing tech giants. Investors leaning toward growth may favor the McGrew valuation, while value purists might stick with Buffett’s caution.
Profitability Metrics: ROE and ROTE
Beyond valuation, profitability metrics like ROE and ROTE reveal how efficiently META generates returns for shareholders. Using TTM data from Q1 2025, we calculated these metrics based on financials from META’s quarterly statements.
Trailing 12-Month ROE
ROE measures net income relative to shareholders’ equity. For the TTM ending March 31, 2025, META’s net income was $66.635 billion. Average stockholders’ equity over the last four quarters (Q2 2024–Q1 2025) was $172.490 billion, calculated from values ranging from $156.763 billion to $185.029 billion.
ROE=66,635,000,000172,490,000,000×100≈38.63%\text{ROE} = \frac{66,635,000,000}{172,490,000,000} \times 100 \approx 38.63\%\text{ROE} = \frac{66,635,000,000}{172,490,000,000} \times 100 \approx 38.63\%
This 38.63% ROE aligns closely with industry sources, such as csimarket.com’s 38.17% for Q4 2024 and stockanalysis.com’s 39.83% TTM figure, confirming META’s strong profitability. #FinancialAnalysis
Trailing 12-Month ROTE
ROTE focuses on tangible equity, excluding intangible assets like goodwill. Average tangible equity was $151.607 billion, after subtracting average goodwill ($20.654 billion) and other intangible assets ($0.229 billion) from total equity.
ROTE=66,635,000,000151,607,000,000×100≈43.95%\text{ROTE} = \frac{66,635,000,000}{151,607,000,000} \times 100 \approx 43.95\%\text{ROTE} = \frac{66,635,000,000}{151,607,000,000} \times 100 \approx 43.95\%
The 43.95% ROTE exceeds ROE, reflecting META’s low intangible asset base, which enhances returns on tangible capital. While historical ROTE (e.g., 27.3% in Q3 2023 per gurufocus.com) was lower, the 2025 figure underscores META’s improved efficiency amid soaring net income. #Profitability #TechStocks
Investment Implications
So, is META a buy? The McGrew Valuation’s “Screaming Buy” status suggests significant upside if META sustains its FCF growth, driven by AI monetization and ad revenue. The Buffett Valuation’s “Hold” rating tempers enthusiasm, indicating fair value under conservative assumptions. The high ROE (38.63%) and ROTE (43.95%) reinforce META’s operational excellence, making it a compelling case for growth-oriented investors.
However, risks remain. FCF volatility (e.g., $19.289 billion in 2022 vs. $54.072 billion in 2024) could skew growth projections. Regulatory pressures, metaverse uncertainties, and competition in AI and advertising are headwinds. The inability to verify the $695.77 closing price real-time adds caution, as does the fixed 8% discount rate, which may not fully capture META’s risk profile.
META stands at a crossroads of value and growth. The McGrew Valuation highlights its potential as a tech powerhouse, while the Buffett method appeals to cautious investors. With stellar ROE and ROTE, META demonstrates financial strength, but qualitative factors—AI strategy, regulatory landscape, and metaverse bets—will shape its future. For now, growth investors might see a bargain, while value investors may wait for a wider margin of safety. #StockValuation #InvestSmart
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