One of the problems with story stocks is that Wall Street has a shockingly short attention span. It wasn't too long ago that MP Materials (MP 1.90%) was a headline-grabbing company. Now, given the roughly 45% decline in the stock price, it seems like investors have moved on. Is it a millionaire maker, or has the story behind this stock played out?
What does MP Materials do?
MP Materials is building a business around the mining and processing of rare-earth metals. These metals are vital to modern technology, as they are used in a wide range of applications, from cellphones to missiles. The second example is important. Certainly, we all desire affordable and powerful modern cellphones, but countries must ensure they have access to high-tech military hardware to protect their citizens.
Image source: Getty Images.
Rare-earth metals aren't just a desirable asset; they are vital to the national interests of countries around the world. That's a problem because China is the largest producer of rare-earth metals today. It has proven through its actions that it is willing to use access to rare-earth metals as a bargaining chip, most recently during tariff negotiations.
This is where the story around MP Materials gets interesting. It is building its business in the United States, which would make it a more reliable supplier of rare-earth metals. This is why the U.S. government made a material investment in the business. That investment was followed up with a material partnership with Apple.
The excitement surrounding both events led to a massive stock spike, which enabled MP Materials to sell stock at advantageous prices. All in, the company raised around $1.5 billion in funding.
MP Materials still has a lot of work to do
That cash is going to be important because MP Materials is still building out its business. In fact, the investment from Uncle Sam was specifically intended to facilitate this process, ensuring the United States would have an alternate supplier of rare-earth metals if access to Chinese-sourced products became constrained. It is an interesting backstory, but one that Wall Street is no longer quite as excited about.
The company is, essentially, still in start-up mode, so only aggressive growth investors should probably be considering it. Notably, despite being down 45% from their highs, the shares are still 175% higher over the past year. This is likely to remain a roller-coaster ride of an investment.
The long-term prospects, however, are still appealing. Countries well beyond the U.S. would likely seize the opportunity to diversify their sources of rare-earth metals. There are other companies trying to do the same thing as MP Materials at this point, but MP Materials likely has a head start on most of its competition.
Even if others enter the market, the demand for these materials within the technology, consumer durables, and aerospace and defense industries, to name just a few, is so strong that there's probably plenty of room for competition.
NYSE: MP
Key Data Points
The problem for investors right now is balancing risk, reward, and time. The rare-earth metals opportunity looks attractive. MP Materials could be a leading company in the space, assuming everything goes as planned as it builds out its business. However, there are still at least a few years to go before MP Materials completes the large capital investments it needs to make.
Probably not worth the risk for most investors
MP Materials hopes to turn a profit by the fourth quarter of 2025. That would be a good first step, with the ultimate goal of the company being sustainably profitable thereafter. However, after such a large stock price advance and the big drawdown, investors should be concerned about valuation. Currently, it appears that the valuation is based more on investor sentiment than on the company's financial performance.
If you were to make MP Materials a long-term holding within a diversified portfolio, it could very well help you create a million-dollar portfolio. But you'll need an iron stomach to handle the volatility of the share price and the uncertainty that comes with building a business from scratch. Most investors will likely be better off waiting for the company to achieve a few more milestones before purchasing it.
