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What the A+ Stock Grades Reveal
Meta Platforms Inc. (META), formerly Facebook Inc., builds technologies that help people
find communities and grow businesses. Its products enable connection and
sharing with friends and family through mobile devices, personal computers,
virtual reality (VR) headsets, wearables and in-home devices. The company
operates through two segments: family of apps (FoA) and reality labs (RL).
FoA includes Facebook, Instagram, Messenger, WhatsApp and other services.
RL includes augmented and virtual reality consumer hardware, software and
content. The Facebook platform enables people to connect, share, discover
and communicate with each other on mobile devices and personal computers.
Instagram is a place where people can express themselves through photos,
videos and private messaging, and connect with and shop from their favorite
businesses and creators. Messenger is a messaging application for people to
connect with friends, family, groups and businesses.
A higher-quality
stock possesses traits associated with upside potential and reduced
downside risk. Backtesting of the quality grade shows that stocks with
higher grades, on average, outperformed stocks with lower grades over the
period from 1998 through 2019.
Meta has a Quality Grade
of A with a score of 99. The A+ Quality Grade is the percentile rank of the
average of the percentile ranks of return on assets (ROA), return on
invested capital (ROIC), gross profit to assets, buyback yield, change in
total liabilities to assets, accruals to assets, Z double prime bankruptcy
risk (Z) score and F-Score. The score is variable, meaning it can consider
all eight measures or, should any of the eight measures not be valid, the
valid remaining measures. To be assigned a Quality Score, though, stocks
must have a valid (non-null) measure and corresponding ranking for at least
four of the eight quality measures.
The company ranks
strongly in terms of its return on assets and buyback yield. Meta has a
return on assets of 20.1% and a buyback yield of 4.6%. The industry median
return on assets is negative 2.7% and the median buyback yield is negative
2.3%. The return on assets indicates how profitable a company is in
relation to its total assets. The higher the return on assets, the more
efficient and productive a company is at managing its balance sheet to
generate profits.
The company has a
Value Grade of C, based on its Value Score of 43, which is considered to be
average. Lower scores indicate a more attractive stock for value investors
and, thus, a better grade.
Meta’s Value Score
ranking is based on several traditional valuation metrics. The company has
a score of 14 for shareholder yield, 39 for the ratio of enterprise value
to earnings before interest, taxes, depreciation and amortization (EBITDA)
and 38 for the price-to-free-cash-flow (P/FCF) ratio, with the lower the
score the better for value. The company has a shareholder yield of 4.6%, an
enterprise-value-to-EBITDA ratio of 8.8 and a 12.5 price-to-free-cash-flow
ratio. The price-earnings ratio is 13.3, which translates to a score of 42.
The Value Grade is
the percentile rank of the average of the percentile ranks of the valuation
metrics mentioned above, along with the price-to-sales (P/S) ratio and the
price-to-book-value ratio.
Meta reported a
negative earnings surprise for second-quarter 2022 of negative 4.9%, and in
the prior quarter reported a positive earnings surprise of 6.3%. Over the
last month, the consensus earnings estimate for the third quarter of 2022
has decreased from $2.704 to $1.983 per share due to one upward and 33
downward revisions. Over the last month, the consensus earnings estimate
for full-year 2022 has decreased 13.1% from $11.686 to $10.151 per share,
based on two upward and 41 downward revisions.
Snap Inc. (SNAP) is a camera company. Its flagship product, Snapchat, is a
camera application that helps people communicate visually with friends and
family through short videos and images called snaps. Snapchat is its core
mobile device application and contains five tabs: camera, communication,
snap map, stories and spotlight. The camera is the starting point for
creation in Snapchat. Communication allows users to send snaps to friends
collectively or individually, through its messaging architecture. Snap map
is a live and personalized map that allows users to connect with friends
and explore what is going on in their local area and around the world.
Stories feature content from a user’s friends, in addition to Snapchat’s
community and content partners. Spotlight is a way to share user-generated
content with the entire Snapchat community. Its advertising products
include Snap ads and augmented reality ads.
Snap has a Momentum
Grade of F, based on its Momentum Score of 3. This means that it is very
weak in terms of its weighted relative strength over the last four
quarters. This score is derived from an above-average relative price strength
of negative 2.7% in the second-most-recent quarter, offset by below-average
relative price strength of negative 67.6% in the most recent quarter,
negative 35.8% in the third-most-recent quarter and negative 31.5% in the
fourth-most-recent quarter. The scores are 2, 50, 20 and 10 sequentially
from the most recent quarter. The weighted four-quarter relative price
strength is negative 41.1%, which translates to a score of 3. The weighted
four-quarter relative strength rank is the relative price change for each
of the past four quarters, with the most recent quarterly price change
given a weight of 40% and each of the three previous quarters given a
weighting of 20%.
Earnings estimate
revisions offer an indication of how analysts view the short-term prospects
of a firm. For example, Snap has an Earnings Estimate Revisions Grade of F,
which is very negative. The grade is based on the statistical significance
of its latest two quarterly earnings surprises and the percentage change in
its consensus estimate for the current fiscal year over the past month and
past three months.
Snap reported a
negative earnings surprise for second-quarter 2022 of negative 33.3%, and
in the prior quarter reported a negative earnings surprise of 385.7%. Over
the last month, the consensus earnings estimate for the third quarter of
2022 has decreased from earnings of $0.042 to a loss of $0.034 per share
due to 19 downward revisions. Over the last month, the consensus earnings
estimate for full-year 2022 has decreased 101.6% from earnings of $0.193 to
a loss of $0.003 per share, based on one upward and 21 downward revisions.
The company has a
Value Grade of F, based on its Value Score of 89, which is considered ultra
expensive. This is derived from a high price-to-free-cash-flow ratio of
88.1 and a high price-to-book-value ratio of 4.52. In addition, Snap has a
Growth Grade of C, which is considered average. This is derived from a
strong five-year sales growth rate of 59.1% and a strong five-year
operating cash flow growth rate of 19.9%. This is offset by a low quarterly
earnings growth rate of negative 163.8% and a low five-year earnings growth
rate of 6.8%.
Twitter Inc. (TWTR) offers products and services for users, advertisers,
developers and data partners. Its products and services include Twitter,
promoted ads and Twitter Amplify, follower ads and Twitter Takeover.
Twitter is a platform for public self-expression and conversation in real
time. Its promoted ads include objective-based features that allow
advertisers to pay only for the types of engagement selected by the
advertisers, such as tweet engagements, website clicks, mobile application
installs or engagements, obtaining new followers or video views. Follower
ads provide a way for advertisers to build and grow an audience that is
interested in their business, product or service. Its follower ads are
pay-for-performance advertising priced through an auction. Twitter Takeover
appears at the top of the list of trending topics or timeline for an entire
day in a particular country or on a global basis. The company sells its
Twitter Takeover on a fixed-fee-per-day basis.
Twitter has a
Quality Grade of B with a score of 63. The company ranks strongly in terms
of its Z-double prime bankruptcy risk score and buyback yield. Twitter has
a Z score of 6.86 and a buyback yield of 3.7%. The industry median Z score
is 5.15 and the industry median buyback yield is negative 2.3%. This is
offset partially by a low return on invested capital of 0.2%.
Twitter has a Value
Grade of F based on a score of 81, which is considered to be ultra
expensive. The company has a score of 18 for the shareholder yield. The
company has a shareholder yield of 3.7%. The enterprise-value-to-EBITDA
ratio is 94.2, which translates to a score of 97.
The company reported
a negative earnings surprise for second-quarter 2022 of 158.8%, and in the
prior quarter reported a positive earnings surprise of 33.3%. Over the last
month, the consensus earnings estimate for the third quarter of 2022 has
decreased from earnings of $0.202 to a loss of $0.004 per share due to 11
downward revisions. Over the last month, the consensus earnings estimate
for full-year 2022 has decreased 32.1% from $1.667 to $1.132 per share,
based on nine downward revisions.
Twitter has a Growth
Grade of D based on a score of 35. The company ranks strongly with its
five-year sales growth rate of 15.0% and five-year earnings growth rate of
15.7%. The company has a Momentum Grade of D, with a score of 34. Twitter
has above-average relative price strength in the second-most-recent
quarter, offset by below-average relative price strength in the first-,
third- and fourth-most-recent quarters.
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