Buying Meta (Facebook) Stock: A Guide for Beginners

How to assess whether it’s a good fit for your portfolio

Meta co-founder, Chairman and CEO Mark Zuckerberg testifies before a combined Senate Judiciary and Commerce committee hearing in the Hart Senate Office Building on Capitol Hill.

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Meta (formerly Facebook) is a very high-profile public company, boasting more than 2.89 billion users worldwide on its social media platform. The company generated more than $29 billion in revenue in the second quarter of 2021, so there’s no surprise that it’s a popular investment.

Shares of Meta were trading around $341 as of November 2021, up from about $120 at the start of 2017.

Buying shares of Meta stock may seem appealing if you’re looking to invest in a high-growth company, or if you admire the social media platform. It’s a commonly traded stock, so you should have no trouble buying and selling shares through any major online discount brokerage, such as Charles Schwab, E*Trade, Fidelity, or TD Ameritrade. The company isn’t the right fit for every portfolio, however.

No one can predict whether a stock will go up or down, but you should be aware of some things before investing your money. 

It’s Not Cheap

One share of Meta stock hovered in the range of $360 as of August 2021. That’s a sizable chunk of change for a single share of stock.

This doesn’t mean the stock is overpriced. Experienced investors look at a company’s share price in the context of earnings. This price-to-earnings (P/E) ratio is calculated by taking the company’s earnings per share and dividing it by the stock price.

Meta’s P/E ratio was about 24 as of November 2021. Many tech companies have higher P/E ratios (above 20) because there's a strong expectation of growth. That puts Meta's P/E ratio on the high side, but not to an extreme level. Apple had a P/E ratio of about 26 as of November 2021. Alphabet had a ratio of about 28, and Amazon’s P/E ratio was about 68 at that time.

It’s Volatile

Meta may be a social media company in the communications industry, but it's often lumped in with other new technology-driven organizations, such as Google, Amazon, Apple, Netflix, and Microsoft (often known as FAANG and FAAMG stocks). These companies tend to grow fast but can also have some wild price swings. This may be especially true of Meta because, as a high-profile company, it has been in the news several times. 

You can examine Meta's volatility by looking at a figure called “beta.” This is a measure of how much a stock goes up or down compared to a relevant benchmark. A measure of 1.0 means it has the same volatility as the S&P 500, while a higher number means it's more volatile. Meta showed a beta figure of 1.27 as of November 2021. That means it's more volatile than the S&P 500.

Volatility isn’t necessarily bad by itself, but not every investor can handle seeing prices go up and down.

If you do invest in Meta, it may be best to avoid looking at the daily price changes and avoid worrying about whether you're making money in the short term. 

Facebook (now Meta) got off to a rocky start, but it has made a lot of money for investors. It was initially a disappointment despite the considerable hype surrounding its 2012 initial public offering. Technical problems prevented some orders from going through, and the stock price, which began at $38, rose just 23 cents on its first day on May 18, 2012. Shares fell to well below $30 for several months, and it would be over a year before shareholders started to see significant gains. 

It Doesn’t Pay a Dividend

Meta is a growth stock, and while it may want to expand quickly and see larger and larger revenue and profit growth, quarter after quarter, all its profits are invested back into the company to fuel its growth. This means that it does not distribute any money to shareholders in the form of dividends.

As an investor, you should be comfortable knowing that money is going back into the company with the aim of growing revenue, and potentially a higher value for your shares. Understand, however, that Meta shares may not be a source of passive income, at least not for the time being.

Is eschewing dividend income in favor of the potential for faster growth a smart move? It depends on your financial goals and investment timeline. You should be okay with a growth stock that avoids dividends if you're far away from retirement and you're investing for the long-term. But it may be time to take your money elsewhere if the company isn't paying dividends and is also growing slower than you’d like.

You May Own the Stock Already

You're probably already investing in Meta, at least indirectly, if you purchase shares of a mutual fund or exchange-traded fund (ETF), especially one that follows the S&P 500 or the broader stock market.

Meta is one of the top 10 companies in the world by market capitalization, so most major mutual funds invest in the company. The Vanguard 500 Index Fund, available to new investors as Admiral Shares (VFIAX), tracks the S&P 500 and invests about 2% of its portfolio in Meta. The iShares Core S&P Total U.S. Stock Market invests about 1.64% of its holdings in Meta. Many other tech-focused funds and ETFs may offer even greater exposure to the company.

Mutual funds and ETFs offer a way to invest money in the company without exposing yourself to the risk of an often volatile stock holding.

The Bottom Line

Meta is a big company with billions of users. It generates billions of dollars in revenue, and it's made a lot of money for investors since going public in 2012. But it’s had its share of poor stock performance. Meta is a relatively volatile stock, so investors should be comfortable with some ups and downs in the share price. 

NOTE: The Balance does not provide tax, investment, or financial services and advice. The information is being presented without consideration of the investment objectives, risk tolerance, or financial circumstances of any specific investor and might not be suitable for all investors. Past performance is not indicative of future results. Investing involves risk including the possible loss of principal.