Down 69% From Its Recent Peak, Is USA Rare Earth Stock a Buy?

China controls a significant amount of the mining and processing of rare-earth minerals. In recent months, concerns have emerged about its dominant position and the U.S. reliance on it.

USA Rare Earth (NASDAQ: USAR) is one company benefiting from the news around U.S. reshoring of the mining and processing of key rare-earth metals and other crucial minerals. The company says it is pursuing an end-to-end "mine to magnet" strategy, aiming to become one of the few integrated rare-earth companies.

The company is speculative, and the stock is quite volatile. After reaching nearly $44 per share in October, shares are down 69% and appear to be a dip-buying opportunity for growth investors. But before you buy, there are a few things to know.

The U.S. rare-earth problem

Rare-earth minerals are essential to the manufacturing of advanced technologies, including electronics, fighter jets, military equipment, and electric vehicles. China dominates the mining and processing of these minerals, controlling a significant share of the global supply.

As a result, the U.S. is dependent on China for access to these materials. This poses a national security risk to the U.S., especially if geopolitical tensions escalate and supply chains for these materials are disrupted.

Earlier this year, China implemented export controls on certain rare-earth elements and the technologies used to process them. These controls were seen as retaliation against the U.S. for restrictions on specific technologies, such as Nvidia's semiconductors, and for increased tariffs. The two countries reached a truce to ease export curbs, but many see this as a temporary measure.

Policymakers and industry leaders in the U.S. are actively discussing strategies to diversify supply sources, invest in domestic production, and reduce vulnerability to external control over these vital resources. This is where USA Rare Earth comes into play.

USA Rare Earth aims to be an end-to-end rare-earth minerals company

The miner seeks to establish a domestic supply chain for rare-earth magnets to support the future of energy, technology, and national security. CEO Barbara Humpton, who began the top role in October, has said the company is in "close communication" with the White House. The Trump administration is mulling reallocating at least $2 billion from CHIPS Act funds to crucial minerals projects.

The company has no history of commercial operations and hasn't earned any revenue since its inception in 2019. It is currently developing its industrial plant in Stillwater, Oklahoma, where it will produce sintered neodymium-iron-boron magnets, commonly used in energy and electrical applications. The final commissioning of the plant is expected in the first quarter of 2026.

Image source: Getty Images.

It also acquired Less Common Metals (LCM), a U.K.-based producer of specialized rare-earth metals. This is a big deal because it accelerates the company's strategy, enabling the production of strategic rare-earth metals and alloys and securing high-quality rare-earth strip-cast alloy for the Stillwater facility. LCM can produce both light and heavy rare-earth metals for permanent magnets at scale, including samarium and samarium-cobalt, which are vital for defense and medicine.

And, it holds a majority ownership stake in the Round Top mine in Texas, one of the richest in the U.S., with deposits of heavy rare-earth elements like gallium and beryllium. Investors will have to be patient with this mine, which currently is undergoing a feasibility study that the company aims to complete by next year. According to an analyst at Canaccord, the project could deliver significant long-term upside, but Canaccord's models don't anticipate production beginning until 2033.

A story-driven stock for now

USA Rare Earth is positioning itself as an end-to-end magnet producer that could help the U.S. secure strategic minerals. The company's opportunity lies in domestic development of rare-earth mining and processing, enabling this country to better compete with China.

It's in its very early stages and is just building the foundations of its commercial business. It generates no revenue, although analysts project that it could earn $41 million next year and $165 million by 2027. However, the company remains a high-risk pick as it establishes itself in the rare-earth space.

Right now, USA Rare Earth is a story-driven stock that could get a boost if the U.S. government invests in it or provides funding to support its growth. That said, it will remain volatile as it seeks to build its business, and it's best-suited for aggressive growth investors willing to stomach the price swings ahead.

Courtney Carlsen has positions in Nvidia and USA Rare Earth. The Motley Fool has positions in and recommends Nvidia. The Motley Fool has a disclosure policy.