Why USA Rare Earth Stock Fell Today

Shares of USA Rare Earth (NASDAQ: USAR) stock fell an unlucky 13% through 1:30 p.m. ET Friday. And why?

Well, last night President Trump announced the signing of a trade deal with China, and this morning, China's Ministry of Commerce confirmed the news, stating its intention to "approve export applications for items subject to export control rules," as CNBC just reported.

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Good news is bad news for USA Rare Earth stock

China's referring first and foremost to applications for the export of rare earth magnets. And the reason this is bad news for USA Rare Earth is that the company is itself trying to break into the rare earth biz, by mining, processing, and supplying rare earths extracted from a mine in Sierra Blanca, Texas.

Any increase in cheap rare earth exports from China could torpedo USA Rare Earth's business model, which is really predicated on China not allowing rare earth exports, such that rare earth sourced from within the U.S. will be the only way U.S. companies can access the products at all.

Is USA Rare Earth stock a sell?

Still, a couple caveats are worth pointing out. First and foremost, USA Rare Earth -- which only formed in 2019 -- doesn't actually mine any rare earths itself... yet. The company has no revenue, operating profit, or free cash flow whatsoever. Its entire $40 million net profit over the past year came from the "gain on fair market value of financial instruments" it holds.

As such, it doesn't really matter what China does (or doesn't do) until USA starts producing some rare earths of its own, and proves itself a viable business. Unless and until that happens, I consider the stock entirely speculative -- and probably a sell.

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