Meta Materials Stock Has Catalysts But Has A Bloated Valuation

Shares of smart materials company Meta Materials (NASDAQ:MMAT) have gained more than 60% in the past month. A lot of it is due to the retail trading interest in the stock. Its short volume ratio stood at over 50% at one time in August. However, with a speculative business outlook, and a bloated valuation, MMAT stock is one to avoid at this stage.

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Meta Materials is an early-stage company that focuses on building advanced materials to help companies develop breakthrough technologies. It went public via a reverse takeover with small energy company Torchlight Energy Resources in June. Since then, its stock has shot up 131% in value.

There have been a few catalysts apart from the short squeeze, which have impacted MMAT stock’s value. Regardless of their impact, the stock’s valuation is remarkably high at this point.  Trading at 326 times trailing-12 month sales, the stock has become incredibly overpriced.

The Catalysts

Meta Material’s management has talked about the multimillion-dollar market opportunity for the company driven by several megatrends. The market for metamaterials is expected to grow to a staggering $10.7 billion by 2030. If you combine the sector with other related sectors such as aerospace, energy, medicine, and IoT, things get even more lucrative.

The company filed 149 patents, of which 82 have been granted. Moreover, it has eight registered trademarks.  Its processes and methods developed over a decade were patented early and provided a multi-year competitive advantage.

On August 5, the company announced it agreed to acquire Nanotech Security for roughly $90.8 million. The acquisition will help Meta Materials in accelerating and de-risking the production process. Nanotech offers nano-coating production equipment, art electron beam lithography, and roll-to-roll nanoimprint lithography. Additionally, Nanotech brings several complementary technologies in 5G, solar, and carbon capture.

Furthermore, the company also announced it had joined hands with Stanford University’s SystemX Alliance program. It provides companies with “a highly leveraged and cost-effective method to sponsor pre-competitive, collaborative research at Stanford.”  Meta Materials hopes to sponsor research by Stanford’s students and recruit them to the company. The participation also projects Meta Materials in a positive light. Meta Materials CEO George Palikaras states that “With META’s growing footprint in Silicon Valley, we are extremely pleased to join the SystemX Alliance.”

Finally, the company is also development a team of experts as part of a scientific advisory board. It expects the group of scientists to be major growth catalysts for the company in driving innovation. Another goal of the board is to identify new opportunities for mergers and acquisitions.

Outlook and Final Word On MMAT Stock

MMAT stock has had a healthy run-up since going public in June. As mentioned earlier, most of those gains were due to the retail trading frenzy, which has caused quite the stir in the stock market this year. However, the short interest in MMAT stock has largely evaporated, and the focus is now on the company’s fundamentals and future outlook.

Though there is a lot to like about the company, it is still a deeply unprofitable company, which has lost more than $50 million in the past 12 months. Moreover, it has burned through more than $9 million in cash, with its revenues barely above $1 million. Signs of growth are minimal, and the path to profitability looks incredibly bleak at this point. It recently posted its second-quarter results, where revenues were at just $624,000, and it lost $5.6 million in cash flows.

Despite the dismal financial performance, MMAT stock is trading at mercurial levels. Hence, it’s best to avoid such a speculative investment at its current lofty valuation.

On the date of publication, Muslim Farooque 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


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