Why MP Materials Stock Popped Friday

Key Points

• MP Materials lost less money than expected last quarter, and collected more revenue than expected.

• Sales surged 84% year over year, but MP is still losing money and burning cash.

• The government has offered MP financial support in the form of a $400 million investment.

• 10 stocks we like better than MP Materials ›

Shares of MP Materials (NYSE: MP), America's biggest pure play on mining rare earths, soared nearly 12% in early trading Friday after beating earnings (sort of) last night. It's since given back much of its gains, but as of 2:25 p.m. ET is still up 4.1%.

Analysts forecast MP would lose $0.20 per share on second-quarter sales of $45.6 million. In fact, the company lost only $0.13 per share (hence "beating" earnings), and reported $57.4 million in sales.

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MP Materials' Q2 earnings

Sales surged 84% year over year, with rare-earth oxide production up 45% and NdPr production more than doubling. MP is still selling off most of the rare earths it mines -- 74%. But the company's keeping more for itself, and used it to create and sell $19.9 million worth of magnets.

One unhappy note worth highlighting: MP lost only $0.13 after backing out one-time costs. With costs included, the company's loss as calculated according to generally accepted accounting principles (GAAP) was much closer to analysts' forecast: $0.19 per share.

Still, this was less than MP lost in last year's Q2.

Is MP stock a buy?

MP Materials stock skyrocketed in July after the Department of Defense invested $400 million in company stock in order to boost the magnets business and secure U.S. supply chain access to these invaluable components. Investors seemed to think that if the government was investing in MP stock, then it must be a sure thing.

I'm not so sure about that.

MP has lost $53.5 million so far this year, and burned through more than $126 million in cash. Even with sales surging, I'm going to want to see the company prove it can generate consistent, solid profits before buying into MP.

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Rich Smith has no position in any of the stocks mentioned. The Motley Fool recommends MP Materials. The Motley Fool has a disclosure policy.