Why Shares of MP Materials Sank 22% in September

What happened

Falling precipitously, the S&P 500 lost more than 9% in September as investors wrestled with rising inflation, interest rate hikes, and growing geopolitical tensions. Take all of those issues and sprinkle in a couple of others, and it becomes glaringly obvious why shares of rare earth elements company MP Materials (MP -2.02%) lost even more ground.

According to data from S&P Global Market Intelligence, shares of MP Materials fell 22% in September.

So what

MP Materials is a leading producer of rare earth elements, critical components found in electric vehicles (EVs). This means the growing interest in EVs is a tailwind benefiting the company.

Last month, however, the market's enthusiasm pumped the brakes on whether the Federal Reserve would raise interest rates -- which it did in late September. With higher interest rates, many speculated that auto sales would face pressure. Pair this with the overriding sense that a recession may be around the corner, and investors surmised that consumers looking to pinch pennies during an economic downturn would probably not be in the market for purchasing a new EV.

The macro environment wasn't the only factor leading investors to click the sell button last month. On Sept. 28, George Gianarikas, an analyst at Canaccord, reduced the price target on shares of MP Materials to $40 from $47. According to Thefly.com, Gianarikas based his downward revised price target on the declining price of neodymium-praseodymium -- rare earth elements that MP Materials produces at its Mountain Pass mine. Shares of MP Materials closed more than 6% lower on the day after investors learned of the new, lower price target.

While the reduction from Gianarikas, in and of itself, was disheartening for investors, when juxtaposed with another analyst's take on the stock, the $40 price target likely became even more disconcerting. On Aug. 5, Ben Kallo, an analyst at Baird, hiked the price target to $55 from $45 on shares of MP Materials.

Now what

After their fall last month, shares of MP Materials have begun to bounce back in October, climbing almost 9% as of the market's close on Friday. These short-term price movements shouldn't distract investors from the long-term potential of this stock.

MP Materials has a distinct competitive advantage in that identifying rare earth element resources is difficult -- let alone developing facilities to produce the related elements. Considering that the company has two projects on the horizon to expand its operations, investors would be well served to dig in deeper to this materials stock.