Not long ago — June 28, in fact — Torchlight Energy Resources merged with Metamaterials to form a company called Meta Materials (NASDAQ:MMAT). Hence, TRCH stock disappeared and, much to the enthusiasm of the trading community, MMAT stock was introduced.
Well, maybe “enthusiasm” isn’t exactly the right word. There was a run-up in the share price, but it took place prior to that merger.
And, by the time the transition from TRCH stock to MMAT stock transpired, a massive share-price crash was in progress. Today, the stock is far below its peak price.
My concern is that the stock could go much lower. If it does, however, then it will be a bargain in an interesting niche sector of the materials market.
A Closer Look at MMAT Stock
One thing I’ve learned over the years/decades is that low-priced stocks can always go much lower.
Moreover, trying to “catch a falling knife” in the markets can be bad for your fiscal health.
Back when it was TRCH stock, this particular stock exhibited all the signs of a major winner. In June, it rallied from $5-and-change to a 52-week high of $21.76.
What caused this astounding run-up? Anticipation of the Torchlight-Meta Materials merger undoubtedly fueled the hype.
It’s also possible that Reddit traders were a contributing factor, though it would be difficult to prove or disprove this hypothesis.
After topping out in June, TRCH/MMAT stock absolutely collapsed. By early August, it was only slightly above $3.
Also importantly, Meta Materials had trailing 12-month earnings per share of a 65-cent loss.
For that reason — along with the downward share-price momentum, and another factor I’ll mention later — it’s entirely possible that the stock will continue to slide.
To be honest, $1 a share could actually be a good buy price for MMAT stock. That way, at least you’d be improving the risk-to-reward profile as an investor.
What’s Unique About Meta Materials
InvestorPlace contributor Robert Lakin made an important point on the eve of the merger, which prospective Meta Materials investors should take note of. Specifically, MMAT stock is the first of its type on the Nasdaq Exchange.
As the company’s founding president and CEO, George Palikaras, explains, “After 10 years of scientific discovery and application development, Meta Materials is now the first Nasdaq-listed metamaterials company, joining the world’s premier exchange for technology companies.”
In other words, if you’re serious about taking a long position in the meta-materials space, MMAT stock is one of a very small number of available options.
Now, I’m not just going to assume that everybody knows what meta-materials (the product type, not the company) are.
I’m not a scientist, so I’ll let the company provide an explanation.
To put it simply, meta-materials are a subset of functional materials.
They’re composite structures which consist of conventional materials like metals and plastics, and they’re engineered/modified to exhibit new or enhanced properties.
This Doesn’t Bode Well
It’s fascinating to consider how these meta-materials might exhibit properties that aren’t easily achievable with natural materials.
But, let’s not get caught up in the science now. Investors have to be cognizant of the red flags if they’re considering a position in MMAT stock.
I already cited the negative earnings per share, as well as the steep downtrend in the stock price.
Another warning sign for me is the fact that Torchlight/MetaMaterials engineered a 2-for-1 reverse share split recently.
Personally, I’m not a huge fan of reverse splits. They’re typically acts of desperation, done when a company is trying to artificially make the share price look bigger.
Oftentimes (though not always), stocks tend to continue moving downwards in price after a reverse split has been implemented.
This seems to already be happening with MMAT stock. So again, waiting for $1 is a cautious and sensible strategy to employ now.
The Bottom Line
It will be interesting to see how the meta-materials market develops over the coming years.
For the time being, though, it might be wise to watch from the sidelines.
MMAT stock could continue to decline and should be a bargain at $1 but not at the current price.
On the date of publication, David Moadel did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
David Moadel has provided compelling content – and crossed the occasional line – on behalf of Crush the Street, Market Realist, TalkMarkets, Finom Group, Benzinga, and (of course) InvestorPlace.com. He also serves as the chief analyst and market researcher for Portfolio Wealth Global and hosts the popular financial YouTube channel Looking at the Markets.