Should You Buy MP Materials Stock at $58?
Key Points
MP Materials carries significant operational and market risks.
Valuation metrics improve meaningfully only after several years, but are likely to improve dramatically after that, all things being equal.
- 10 stocks we like better than MP Materials ›
Having previously outlined why I think Freeport-McMoRan is a better stock to buy on a risk/reward basis than MP Materials (NYSE: MP), it might seem strange to argue that the latter is also an attractive stock to buy. At least it is for a certain type of investor, particularly those who believe that trade tensions with China are structural and enduring.
The case for MP Materials stock
First, there are the numbers, then the belief in those numbers, and finally, the underlying tenets that drive that belief. In this case, the numbers are the Wall Street analyst consensus valuations based on the current price and the analyst consensus for earnings and cash flow from Visible Alpha, as well as the current price of $55.66.
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As you can see, it will be a few years before the stock moves into value territory, let alone starts generating cash.
|
MP Materials |
2026 |
2027 |
2028 |
2029 |
2030 |
|---|---|---|---|---|---|
|
Price-to-earnings |
N/A |
69.2x |
46.5x |
34.7x |
23.6x |
|
Price-to-free cash flow |
N/A |
N/A |
N/A |
37.7x |
21.3x |
|
Enterprise value (EV) to earnings before interest, taxes, depreciation, and amortization (EBITDA) |
72.4x |
25.6x |
19.8x |
15.7x |
12.1x |
Data source: Visible Alpha
In addition, as discussed in the Freeport-McMoRan/MP Materials piece, there are substantive risks in the operational pathway to hit these numbers, such as successfully constructing a rare-magnet manufacturing facility (10X), reliance on the Mountain Pass, environmental and regulatory concerns, and technological and operational challenges in ramping up rare-earth magnet production.
Image source: Getty Images.
What you have to believe to buy the stock
Ultimately, investors have to believe that all of these things will progress smoothly, and most importantly, that the trade tensions with China (the dominant player in rare-earth materials and magnets) will be such as to continue to encourage U.S. government support for MP Materials, as well as premium pricing on domestically produced and non-China-sourced rare-earth magnets.
If you are looking to buy a stock to manifest that belief and are comfortable with MP Materials' operations risk, the stock is highly attractive.
Should you buy stock in MP Materials right now?
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Lee Samaha has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends MP Materials. The Motley Fool has a disclosure policy.
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