Whenever a publicly traded company witnesses its equity price tumble horrendously over a short period — as is the case for Matterport (NASDAQ:MTTR) stock — there are usually two schools of thought.
Either the bloodshed is a once-in-a-blue-moon opportunity to snag shares on the cheap or it’s a toxic asset that shouldn’t be touched with a 20-foot pole. My gut reaction in the case of MTTR stock is more toward the cautious end of the spectrum.
In January, I felt that Matterport lacked teeth in its venture with the metaverse or the next generation of connectivity. My hesitation had less to do with the spatial data platforms and imaging company itself than my concern that the metaverse concept could be overhyped.
At the time, shares were down 47% on a year-to-date basis.
Next, I wrote about MTTR stock in early February and again had reservations. This time, I mentioned that I didn’t see how Matterport mattered in the long run.
True, its spatial imaging services can help drive interest toward certain properties over others. Ultimately, though, an intriguing property is an intriguing property, irrespective of Matterport’s services.
Back then, MTTR stock was down 59%.
Now, I’m writing about the company following its fourth-quarter 2021 earnings report. On paper, the results were solid, with Matterport delivering year-over-year revenue growth of 15%, exceeding Wall Street’s consensus target of 6.4%.
Management slightly missed the consensus earnings estimate, but the real damage came from Q1 and full-year 2022 guidance, which were much weaker than analysts anticipated.
At time of writing, MTTR stock is down nearly 65% YTD. Are you starting to see a pattern?
MTTR Stock Is a Discount to Avoid
It’s here where I should probably bring up the sunk-cost fallacy. Also known in the investment world as throwing good money after bad.
It’s loosely a kind of fatalism. Sometimes investors feel that after suffering such steep losses on a stock, they might as well stick with it in the hope it will eventually recover.
Maybe it will, maybe it won’t. but so far, no matter what kind of explanations that management provides, MTTR stock keeps dropping.
Such extreme volatility is probably the reason why Harvard Law School has been adamant about investors conducting their due diligence before participating in public debuts via a special purpose acquisition company, as was the case with Matterport.
To be fair, the poor forward guidance that tanked MTTR stock was due in part to supply chain disruptions. As a result, it’s been difficult for Matterport to sell its spatial data platform imaging products.
However, as some analysts have pointed out, supply chains will eventually normalize. Thus, it’s possible that MTTR could be a tremendous buying opportunity.
I’m going to grant that anything can happen in this crazy market environment. Still, I think investors are better served recognizing the dominant trend for MTTR stock. Just to start the discussion, you don’t just lose 65% over a less-than-two-month period because your business is viable.
More critically, the supply chain disruption issue is a well-known headwind. If Matterport’s woes were mostly tied to a one-off disruption, then it wouldn’t seem to make sense for investors to run for the exits. Surely, astute investors would see the potential here but apparently, they don’t.
Rather than chalk the volatility of MTTR stock to a tidy hackneyed phrase like the market is being irrational, maybe the issue is that it’s being totally rational?
Shaky View Over the Horizon
If you’re bullish on Matterport, then a return to normal might be your ticket to upside. However, even that’s not guaranteed, particularly with conflict in eastern Europe risking a global spillover.
Even if no shots are fired at us, instability in the global economy is going to be a problem. If the global economy gets shaky, Matterport probably won’t do well.
So for me, unless something fundamentally changes Matterport’s trajectory for the better, I’m going to watch events from afar; as in really, really far.
On the date of publication, Josh Enomoto 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.
A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare.