Meta Platforms' Valuation Debate Sets The Stage For Direxion's Bull And Bear Funds

Constituting one of the members of the Magnificent 7, social media giant Meta Platforms Inc. META needs no introduction. Thanks to a market capitalization exceeding $1.61 trillion, its influence stretches across the globe. At the same time, the performance of META stock this year has paled in comparison to prior years, setting the stage for a tight battle between the bulls and bears.

Fundamentally, Meta Platforms continues to deliver impressive financial results. For example, in the fourth quarter of 2024, the company posted ad revenue of $46.8 billion, marking a year-over-year increase of approximately 21%. For the full year, total revenue landed at $164.5 billion, up 22% against 2023's tally.

Even better, it's difficult to imagine another enterprise being in a position to challenge Meta's competitive moat anytime soon. As the largest social media company in the world, Meta boasts close to 4 billion monthly active users worldwide. In addition, the tech juggernaut features a "Family of Apps" – Facebook, Instagram, Messenger and WhatsApp. Subsequently, the platform holistically resonates with consumers from multiple age groups.

Still, not everyone is convinced that META stock represents good value. According to investor Peter Lynch's favorite valuation test – the price-earnings-to-growth (PEG) ratio – only three names among the Magnificent 7 come close to being reasonably priced. Unfortunately, with META's PEG ratio landing at 2.48, its valuation stretches the definition of "reasonable."

Adding to the skepticism, Cathie Wood-led Ark Invest recently caught Wall Street's attention for making significant transactions. Conspicuously, the fund reduced its holdings of META stock, a decision which coincides with the tech firm's ongoing legal battles. One particularly contentious issue involves Meta's efforts to dismiss an antitrust case filed by the Federal Trade Commission (FTC) — part of a trial that could potentially lead to the breakup of the tech behemoth.

The Direxion ETFs: With both sides carrying ample ammunition for their narratives, financial services provider Direxion offers contrasting META-focused exchange-traded funds for speculators to trade. Those in the bullish camp may consider the Direxion Daily META Bull 2X Shares METU. On the other end, pessimists may be interested in the Direxion Daily META Bear 1X Shares METD.

Primarily, the METU and METD ETFs offer a convenient medium for speculation. Typically, those interested in leverage or short wagers must engage the options market, an arena known for its myriad complexities. These Direxion funds, however, act much like any other publicly traded security – therefore, the learning curve is relatively shallow.

Still, investors should be aware of the unique risks of leveraged and inverse ETFs. First, these products tend to be more volatile than standard funds. Second, they're meant for exposure lasting no longer than one day. Holding either METU or METD beyond the recommended period may incur value decay due to the daily compounding effect.

The METU ETF: After a choppy start to the year, the METU ETF is attempting to build a rising baseline, having gained over 5% since the January opener.

• METU recently secured an important technical victory by shooting above its 50-day moving average.
• Technically, its next natural target is the psychologically significant $40 level. Over the longer term, the bulls will eventually need to secure the $44 price tag.

The METD ETF: Although the METD ETF saw positive momentum throughout March and most of April, a market recovery in May has translated into hefty losses for the inverse fund.

• Currently, METD finds itself trading below its 50 and 200 DMAs, indicative of significant demand loss.
• What bearish speculators need to watch closely is the fading volume for the inverse fund, which may suggest reduced interest in the short thesis.

Featured image by Thomas Ulrich from Pixabay.