After Falling 41% From Its Recent Peak, Is MP Materials Stock a Buy?

Rare-earth magnets are crucial to several industries, including defense, consumer electronics, electric vehicles, and other electronic applications, and the United States is seeking to secure its supply.

MP Materials (NYSE: MP) is one company that has exploded onto the scene due to its unique position in the rare-earth magnet space. The company is a key domestic provider of these magnets and aims to be a top domestic supplier as the U.S. diversifies its supply chain. It scored some big wins this year on contracts that provide a steady floor for its product, along with support that will help it expand its domestic mining and production capabilities.

The stock reached $100 a share at one point early this year, but is now down 41% from that recent peak amid recent market volatility. The stock has undergone some significant swings; is it a good buy amid the recent sell-off? Let's dive into its growth opportunities to find out.

MP Materials is uniquely positioned in the domestic rare-earth magnet market

In recent months, concerns have emerged about rare-earth elements and their role in the United States' national security. Currently, China controls a significant amount of the mining and processing of rare-earth minerals.

For example, China controls 90% of global neodymium-praseodymium (NdPr) production, a critical feedstock for high-strength rare-earth magnets. It has used its dominant position to tighten export controls on some key rare-earth materials in negotiations with the U.S., which has imposed significant tariffs on Chinese goods in recent years amid ongoing trade tensions.

MP Materials owns and operates the Mountain Pass Rare Earth Mine and Processing Facility in California, the only rare-earth mining and processing site of its scale in North America. The Mountain Pass ore body is one of the world's highest-grade rare-earth resources.

The facility is fully integrated for refining and produces refined rare-earth oxides and related products, including NdPr oxide and metal. It achieved a record 721 metric tons of NdPr oxide production in the third quarter, a 51% year-over-year increase.

Image source: Getty Images.

Additionally, the company is expanding its downstream magnetics segment, a crucial component of its mine-to-magnet integration strategy. It has a facility in Fort Worth, Texas, where it produces magnetic precursor products, such as NdPr metal. This facility's capacity is projected to expand to 3,000 metric tons (MTs) of magnets annually. It also plans to build a second facility, the 10X Facility, which will increase its U.S. magnet manufacturing capacity to 10,000 metric tons annually.

MP Materials has made some massive deals

In July, MP Materials announced a multibillion-dollar public-private partnership with the Department of Defense (DOD). The Department would take a 15% ownership stake in the company, a partnership that Jefferies described as "transformational" in an August note.

As part of this three-year agreement, starting Oct. 1, the DOD has committed to purchasing 100% of the facility's output on a cost-plus basis. It has established a price floor of $110, creating an earnings floor for MP and providing visibility into future cash flow. The Department is also committed to purchasing the entire output of magnets produced at the 10X Facility, thereby guaranteeing the 10X Facility an annual minimum earnings before interest, taxes, depreciation, and amortization (EBITDA) of $140 million.

MP Materials also announced a deal with Apple to supply the technology giant with rare-earth magnets manufactured in the U.S. from 100% recycled materials. Apple is a foundational customer for this business, and it will build a large-scale, dedicated recycling line at its Mountain Pass facility and expand capacity at its Fort Worth facility to fulfill this agreement. Shipments of magnets are expected to begin in 2027.

MP Materials is a play on domestic rare-earth materials

Analysts covering MP Materials expect strong earnings growth over the next several years. Next year's earnings per share are expected to be $0.56, and analysts project they will double to $1.12 by 2027. Based on this forward estimate, MP Materials is priced at 52 times its projected 2027 earnings, giving it an expensive forward valuation.

MP Materials has a solid growth opportunity ahead of it. The company stands to benefit from ongoing federal support as it establishes a domestic supply chain for rare-earth magnets, which could provide it with a significant growth runway over the next decade and beyond. That said, the stock is speculative and vulnerable to significant price swings as it builds out its production capacity and scale, so size your position accordingly if you decide to buy it today.

Courtney Carlsen has positions in Apple and MP Materials. The Motley Fool has positions in and recommends Apple and Jefferies Financial Group. The Motley Fool recommends MP Materials. The Motley Fool has a disclosure policy.