One stock that has surprised markets with a wild ride during the past twelve months is Meta Platforms (NASDAQ: META), which went from a high of $350 a share in 2022 to a low of roughly $88 during the same year and began 2023 by rising as much as 269%.

News typically follows stock prices, which is essential to consider when investors recall the terrible headlines surrounding Meta during its decline, specifically how investing in the metaverse had been a fiasco. Now that the stock has risen near its all-time high of $384.3, stories about the stock seem more optimistic.

What should investors listen to? Is the stock overvalued after its monstrous rise, or are news and sentiment right in being overly bullish? Well, while there is no easy answer, some clear trends could make Meta a potential investment today, especially after its recent 16% decline.

Solid Fundamentals

Most technology companies are notorious for having increased debt loads on their balance sheets, making them extremely sensitive stocks to any economic interest rate changes. Meta's financials mark the difference, as the company's debt makes up roughly 21.6% of the total capitalization, low for the tech sector.

Not only is the debt level lower than the industry standard, but Meta's free cash flow (operating cash flow minus capital expenditures) for the year has been approximately $24 billion, where the total debt stands around $37 billion today.

With less than a year and a half of free cash flow, Meta can pay off its entire debt, which is something only some companies can say. More than this, strong free cash flow is the primary factor that can catapult stock prices higher; here's how this is happening.

Meta has been buying back a significant amount of its stock with this free cash flow, 101 million shares, during the past year, to be specific. This benefits shareholders because they own a larger piece of a growing pie.

Another benefit that most investors only sometimes consider is that Meta's ROIC (return on invested capital) has hovered between 15% and 20% historically, which means all the money deployed to buy back stock is also gaining such returns for shareholders.

Some have critiqued Meta for investing so much in the metaverse, which has yet to show any profits or signs of previously expected growth.

Of course, this has driven ROIC down to a five-year low of 14%, which is still high, though not as good as what Meta is used to, but this is better than it seems.

The strength of Meta's fundamentals spills over to its market share, where Facebook owns 53.1% of total social media visits (not accounting for Instagram). This is huge because, even if the metaverse project does not pay out, Meta still has many tailwinds to further monetize its online empire.

New Highs on the Way

Meta analyst ratings point to a consensus price target of $319.79, translating into a net upside potential of 8% from today's prices. These targets seem slightly conservative when considering the significant factors that can push this stock higher.

Because the heat has been on the metaverse, markets still need to remember that Meta also owns other major platforms, like Instagram and WhatsApp. As the world of marketing and digital ads becomes dominated more and more by short-form content, Instagram Reels are in to take the cake.

Advertising revenue rose 11.8% during the year despite an almost year-long contraction in American business activity, as judged by the nine months of consecutive contraction readings in the ISM Manufacturing PMI index. This shows that, despite contracting activity, businesses are still looking to Meta for their online advertising solutions.

One other ticking timebomb is the metaverse itself; as management points to continued investments in this and other projects, a large gap of used capital could one day be filled.

Now that Meta focuses on other things like Threads and Instagram/WhatsApp monetization, the metaverse project may take a back seat. Even with further assumed spending, analysts still expect double-digit jumps in earnings per share for the next twelve months.

Analyst EPS projections point to a jump of 26.7%, which would bring a similar-sized rally in the stock with all else being equal, as EPS typically drives stock prices.

For a highly bullish case, imagine what this number could look like if all the cash spent in the metaverse is used for other things. Would ROIC jump back to its historical levels, and management would have a lot more funds to go around and deploy into more aggressive share repurchases.

With the monetization of other platforms and the possibility of an ROIC jump, analysts may need to revise their targets a bit higher than today's levels. It's up to investors to decide if they will beat them to the curb.