MP Materials (MP -0.59%) has seen a phenomenal stock price advance over the past year, with the shares up over 450%! That was largely driven by a price move which started in May and really took off in July. That was when the United States government agreed to invest $400 million in the rare-earth element producer.
There's a lot to unpack here as you try to decide if the rally has gone too far or if there's still long-term value on offer.
What does MP Materials do?
MP Materials mines for and produces rare-earth metals. These are vital inputs to modern technology from the cellphone in your pocket to military products, like missiles, which are essential for a country's self-defense.
Right now, most of the world is reliant on China for rare-earth metals. Given the geopolitical tensions today, it should be clear why this could be a problem. The problem has been magnified by the fact that China has proven more than willing to restrict access to its rare-earth metals as it attempts to gain leverage over other nations.
Image source: Getty Images.
What's unique about MP Materials is that it operates in the United States. That not only means it operates in a geopolitically stable region, it means that the U.S. government has direct access to the business. To facilitate MP Materials' growth, Uncle Sam has made a big investment in the company, as noted above. The cash infusion is in the form of convertible preferred stock, which means that, at some point, the U.S. government could also become a large shareholder in MP Materials.
That's a huge vote of support for the business, which is still fairly early in its development. Investors got excited by the news and the stock rocketed higher, pricing in a lot of the good news. Leveraging the stock price advance and increased market notoriety, MP Materials also sold additional stock to the public.
It even attracted additional investment from other companies looking to solidify their access to rare-earth metals, notably Apple. But this is also where things really start to get complicated for investors.
Is MP Materials too expensive to buy?
When MP Materials reported second quarter 2025 earnings, which occurred after the announcement of the U.S. government investment, it posted a loss of $0.19 per share. Taking out some one-time items improves that to a loss of $0.13 per share. Stepping back and looking at the big picture, MP Materials is a money-losing startup.
For that reason alone, conservative investors should probably avoid it. But even for more aggressive investors, the red ink on the income statement creates a problem since it makes it difficult to value the shares. You simply can't create a meaningful price-to-earnings ratio with negative earnings. That's the normal go-to valuation metric for most investors.
But given the start-up nature of the business, price-to-sales is a tough metric to use, too, since revenue is still growing quickly at the moment -- up 84% in the second quarter of this year, which seems likely to be an unsustainable figure over the long term. But it could be sustainable over the near term, if MP Material executes well.
How much that revenue growth is worth really depends on how long MP Materials can sustain its growth. And that is kind of unknowable at the moment.
MP PS Ratio data by YCharts
But investors are currently pegging the price-to-sales ratio at around 46. That's a huge figure for any company. For comparison, Apple's P/S ratio is 8.5 right now. Nvidia's P/S ratio is around 29. There is a lot of good news being priced into MP Materials' stock at the moment. And almost all of that has come from the quick burst in the stock price over the past few months.
Tread carefully with MP Materials
MP Materials is still building its business, so high capital investment costs are likely to remain a major headwind to profits for longer. While it is impossible to know the timeframe on that, mining is a capital-intensive business so it could be years. The market excitement around the shares, on the other hand, could quickly wane as fickle investors move on to newer stories.
There is a huge long-term opportunity here, but even the most aggressive investors should be careful with MP Materials today. This is a story stock and all it would take would be a single negative, or even less positive, news story to turn investors from being shockingly bullish on the stock to bearish.
