The Metals Company (NASDAQ:TMC) has had a rough month. Since closing at $12.39 on Sept. 16, just six days after going public, TMC stock is down 70%.
The company went public as the result of a special purpose acquisition company (SPAC). Many of these stocks have fallen out of favor with investors. However, it might be time for risk-tolerant investors to consider taking a position in the company’s stock.
But before you make a move like that, it’s important to understand what’s going on. Right now, there appear to be a couple of different catalysts affecting TMC stock.
The first, as I previously mentioned, is that SPAC stocks have fallen out of favor with many investors. The Metals Company was formed when DeepGreen Metals merged with the Sustainable Opportunities Acquisition Corporation (SOAC). In 2020, SPAC stocks were the rage among retail investors. But sentiment has turned bearish as investors realize that many of these companies are several years away from revenue, let alone being profitable businesses.
That doesn’t fully explain the drop in TMC stock. After all, unlike many other SPAC stocks, the post-merger bounce in The Metals Company was subdued.
When Trends Collide (And Not in a Good Way)
My InvestorPlace colleague Chris MacDonald highlighted another pain point for TMC stock: the environmental lobby. Specifically, the company’s deep-sea mining was called into question for its environmental impact.
The Metals Company is seeking to extract metals from the sea floor that can be used in the development of batteries for electric vehicles (EVs). The irony isn’t lost on me that the company which has a long-term goal of helping the environment is being critiqued because it’s harming the environment.
The company has since commenced pilot demonstrations that help show the company’s processes require no drilling or blasting. They also emphasize that the company collects elements such as antimony and mercury, which are regarded as being low-hazard elements.
To date, this hasn’t done much to boost the stock’s price. However, it does appear that the rate of decline is slowing.
In the News For the Wrong Reasons
Perhaps the most consequential catalyst for the TMC stock plunge is an investigation into the company for alleged securities fraud and/or other unlawful business practices. The Wall Street Journal reported the charges against the company as including “overpayment on licenses to potential undisclosed insiders…artificially inflated-exploration expenses … potentially unusable licenses for which TMC paid $43 million in cash and stock; and … a history of affiliating with bad actors.”
The lawsuit is in its early days. Generally, these situations resolve themselves over time. The question for investors is when is the right time. You don’t want to catch a falling knife. On the other hand, TMC stock is already in penny stock range, it may be finding a bottom.
What may be a little more concerning can be found on page 7 of the company’s investor presentation. The company says it has not received two-thirds of the $330.3 million in PIPE funding from the merger. This may not be unusual, but the language in the presentation is sufficiently ominous:
SOAC and TMC intend to continue to seek to enforce the funding obligations of the two non-performing investors under the subscription agreements.
Is TMC Stock a Bottom-Feeding Buy?
This is my first time writing about The Metals Company and as intriguing as the company’s process is, there are enough red flags to keep even risk-tolerant investors away. The company is at least two years away from commercial production and it will need more funding by then.
However, if the stock has found a bottom, then the downside risk may be negligible. And the upside? Well even if the stock makes it back to the $10 mark, you’d be sitting well.
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On the date of publication, Chris Markoch 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.
Chris Markoch is a freelance financial copywriter who has been covering the market for seven years. He has been writing for InvestorPlace since 2019.