Buying Meta (Facebook) Stock: A Guide for Beginners

Meta, formerly known as Facebook, is a very high-profile public company. It boasts more than 2.89 billion users worldwide on its social media platform. Meta made 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 hold appeal 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. Still, the stock isn't the right fit for all investors.

No one can predict whether a stock will go up or down. Still, you should be aware of some issues 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 large chunk of change for a single share of stock.

This doesn't mean the stock is overpriced. Experienced traders look at a company's share price in the context of earnings. This price-to-earnings (P/E) ratio is given 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. Still, 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 even more true of Meta because, as a high-profile company, it always seems to be in the news.

You can see 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.

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 got off to a rocky start, but it has made a lot of money for investors. The stock was at first a letdown despite the big hype that came with its 2012 initial public offering. Technical problems kept some orders from going through. Also, 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 many months, and it would be over a year before stock buyers started to see large gains.

It Doesn't Pay a Dividend

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

If you invest in Meta, you should be content knowing that money is going back into the company with the aim of growing revenue, which could mean a higher value for your shares. This means that Meta shares may not be a source of passive income, at least not for the time being.

Is giving up income in favor of the promise of 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 buying stock for the long term. If you want your stock to produce income, you may want to look at other stock to purchase if you're not being paid dividends and the stock is growing slower than you'd like.

You May Own the Stock Now

You may already be invested in Meta if you own 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 it. 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 Meta.

The Bottom Line

Meta is a big company with billions of users. It earns billions of dollars in revenue, and it's made a lot of money for people since going public in 2012. But there are times when the stock hasn't done very well. Meta is looked at as a volatile stock, so you should be able to deal 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.