Texas-based exploration-stage oil and gas company Torchlight Energy (TRCH) will soon cease its operations and begin producing nanomaterials via a reverse takeover from Canadian materials developer Metamaterial. That's a pretty wild story. Meanwhile, the meme stock is probably the best long-idea the 10 million strong r/WallStreetBets community has come up with. The stock is already up a stunning 1,310% over the last 12 months.
Don't get me wrong. Some traders are in the stock for nothing more than to squeeze the shorts and transfer capital to one's own pockets at their expense. Over 30% of the float is shorted. However, there is a genuine proposition behind Metamaterial. Let's look at why investors can feel confident about buying a small stake at these levels.
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What's so special about Metamaterial?
Metamaterial is known for conducting research and development into its namesake "metamaterials", which consist of patterned composites (i.e. polymers and fibers) and nanoparticles. Their combination and surface geometries allow manipulation of incoming electromagnetic radiation ("EMR", such as light). For example, imagine looking at a straw in a glass of water coated with metamaterials and seeing the straw bent like a triangle the other way.
There are many possible applications with the new technology, such as making invisible 5G antennas, augmented eyewear, medical devices, etc. But the coolest one is probably that of a personal or military cloaking device.
Hype aside, Metamaterial's technology definitely has not advanced that far yet. Nevertheless, the company plans to initiate production of its metamaterials around the end of the year, and possesses 54 patents protecting its trade. Its flagship product is Nanoweb, a transparent conductive material that could be used in electronic displays, solar panels, LED devices, etc.
The standard material used in these items is the indium tin oxide (ITO) film, and it has been so for four decades. However, global indium supplies are falling, and the material itself has relatively high electrical resistance (about 100 ohms per square sheet), which also degrades significantly after bending. Meanwhile, Metamaterial boasts that Nanoweb could have an electrical resistance of less than one ohm per square sheet, resulting in near-perfect (99%) conductivity. The less the resistance, the more the conductivity, and by proxy, the more efficient the device becomes in terms of energy use. So there's definitely a lot of commercialization potential out there.
An unconventional transaction
The technology is pretty exciting, but the company needs a huge wad of cash to see things through. It is therefore conducting a reverse-takeover of Torchlight so that it can list directly on the NASDAQ exchange. After the deal completes, Metamaterial plans to divest Torchlight's oil and gas assets in Texas and focus solely on producing metamaterials.
Thanks to the spectacular short squeeze, Metamaterial got exactly what it needed. Torchlight raised $100 million in cash on June 21 by issuing new shares and may sell up to a total of $250 million.
Is this a safe long-term buy?
Torchlight/Metamaterial is one of those companies that are at the forefront of developing revolutionary technologies. It is therefore very difficult, if not impossible, to value the stock. Some would say that its market cap of $788 million is too big for a company with no revenue, while others may say it is undervalued to its future potential.
But like tech companies in the dot-com era or cryptocurrencies, Torchlight stock is a type of asset with "bubble potential". There is just a lot of hype surrounding what it is capable of. Investors shouldn't risk a sizable portion of their portfolios for this one, but opening a small stake to see how high the materials stock could go wouldn't hurt.
