Meta Materials (NASDAQ:MMAT) is a company focused on developing nano technologies. It intends to apply this in a wide range of fields such as 5G, solar panels, health care, and digital security. An old oil and gas firm, Torchlight Energy, merged with Meta Materials recently, creating the new company. MMAT stock has been exceptionally volatile during this period.
It’s been hard to value Meta Materials for a couple of reasons. One, there was limited float and high short interest heading into the merger, creating opportune short squeeze conditions. Meta Materials added to that by offering shareholders a preferred dividend tied to legacy Torchlight assets. This created additional uncertainty around the merger, stoking the fuels of the short squeeze further.
Beyond those technical factors, it’s not easy to put a clear value on Meta Materials. The company is early-stage and mostly conceptual at this point. Nano materials seem like they could be a disruptive force in many industries. But it’s hard to tell, at this point, how much of that opportunity that Meta Materials may be able to capture.
Nanotech Security: No Game Changer
Meta Materials will be acquiring Nanotech Security (OTCMKTS:NTSFF) for 1.25 Canadian dollars per share in an all-cash transaction. That values the company at 91 million Canadian dollars ($73 million).
Nanotech Security holds patents on visual technologies used to create sub-wavelength nanostructures and microstructures. Using protective film or other such additives, Nanotech Security’s products can apply tiny protective features to items such as banknotes to prevent forgeries. These features are also used to protect secure documents, threads, labels, and brand protection stripes, among other purposes.
While this is definitely a cool and interesting technology, it hasn’t yet found a large market. As of this summer, Nanotech Security is generating less than 3 million Canadian dollars per quarter, and it runs a small operating loss. There’s the seed of an interesting business here, to be sure. However, it seems Nanotech Security isn’t anything remotely close to justifying the greater than $1 billion market capitalization on MMAT stock.
Other Assets and Possibilities
Nanotech Security looks like it will be the largest line of business at Meta Materials once that merger is complete. Indeed, Meta Materials has very little else that is revenue-generating at this point. For the quarter ended June 2021, Meta Materials brought in just $624,000 of revenues. That’s a rather scant figure for a company with a market cap as high as MMAT stock.
The company did have more than $154 million of cash on hand. That gives it ample strategic options going forward. Though, of course, a large chunk of that cash will be used in finalizing the upcoming Nanotech Security merger.
Beyond the cash and impending merger, Meta Materials points to a bunch of partnerships and possibilities. In theory, nano materials seems like a highly promising field. However, management simply needs to turn this possibility into revenues before investors can fully get on board with the story. The company’s small research & development budget – currently around $7 million annually – also raises questions about its long-term ability to innovate.
MMAT Stock Verdict
Much of the trading excitement around Meta Materials is due to its preferred shares. As part of the merger with Torchlight, the company created a preferred share to give holders a dividend related to the old oil and gas properties. It’s uncertain what the size of this dividend will ultimately end up being, stoking speculation.
On top of that, this preferred share was hard to trade on platforms such as Robinhood (NASDAQ:HOOD), leading to a great deal of confusion on Reddit. The preferred used to trade as MMAT-A but recently changed tickers to MMTLP. As of this writing, MMTLP has bounced to $2.50, but is still trading far below what many Meta Materials stock traders had been hoping for.
Regardless, at this point, MMAT stock is its own security. Don’t mix it up with the preferred shares. And, as far as the ongoing Meta Materials goes, there’s a lot of interesting concepts and technological possibilities, but very little in the way of tangible products or revenues as of yet. The Nanotech Security merger will give the company a bit more of a base, but it will have to find other growth avenues to justify its current share price.
On the date of publication, Ian Bezek 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.
Ian Bezek has written more than 1,000 articles for InvestorPlace.com and Seeking Alpha. He also worked as a Junior Analyst for Kerrisdale Capital, a $300 million New York City-based hedge fund. You can reach him on Twitter at @irbezek.