Even If Matterport Stock Has Found a Floor, a Comeback Will Take Time

  • If tech stocks can avoid a further pullback, downside risk may be minimal with Matterport (MTTR) stock.
  • However, that’s not to say a return to past price levels is just around the corner.
  • Even if it can sustain its current high valuation, investors may wait for growth to re-accelerate before bidding it back up again.
Illustrative Editorial of Matterport's (MTTR stock) website homepage
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In recent weeks, tech stocks have started to bounce back, including Matterport (NASDAQ:MTTR). Since March 15, MTTR stock has climbed 27%. Shares in the spatial data software provider may still be far from past highs. But to many, it may appear that this former hot stock has bottomed out.

Is that the case? Possibly. A lot hinges on whether growth/tech can continue to rebound in the months ahead. Although it sounds counter-intuitive, growth plays could keep climbing at a time where interest rates are moving up, and the odds of a recession are climbing, some have argued this very well may happen.

If tech avoids another big pullback, Matterport will likely avoid a trip down to penny stock levels (under $5 per share). Admittedly, that’s something I’ve said could happen, due to its rich valuation.

That said, don’t confuse the prospect of it finding a floor with it getting geared up to bounce back in price. External factors could keep it steady, yet it’s the company’s operating results that will determine whether it makes it back to double-digit prices. Or, if it stays stuck at single-digit prices.

MTTR Matterport $8.20

Pricey MTTR Stock Could Sustain Its Rich Valuation

At current prices (around $8.65 per share), Matterport continues to trade at a high valuation multiple. Based on sell-side revenue estimates, it trades for around 17x projected 2022 revenue.

Even though this rich valuation takes into account growth of its main business (providing its technology to the real estate industry), plus potential growth from the rise of the metaverse, I’ve argued in the past that shares could take a 50% haircut, and still sport a price-to-sales (P/S) ratio fully reflective of its prospects.

In turn, making it best to wait until MTTR stock falls to such a valuation before buying. However, I’ll concede the opportunity to do so may not arrive. At least, if tech stocks can continue to rise in price, instead of falling back into bear market territory. Again, it may seem odd that given that the numerous uncertainties that have knocked tech stocks lower since November are still in play, that what’s played out since mid-March can be more than a relief rally.

But as a Barron’s commentator argued on Mar 24, it’s not an anomaly for a growth stock revival to happen when market conditions are like they are today. If this plays out, and investors continue to cycle into growth/tech rather than out of it? It may be enough to prevent a further sharp drop for this stock on valuation concerns.

What Could Limit the Stock’s Ability to Surge From Here

MTTR stock may be able to avoid a drop to $5 per share (or lower) over the next twelve months. Yet a move to prices well above $10 per share? That may prove difficult. Mainly, because of the “show me” view the market currently has when it comes to the company.

Revenue growth has been underwhelming in recent quarters. This is mostly due to the company’s shift from a license-based to a subscription-based (SaaS) business model. Declines in license-based sales appear likely to continue masking growth in subscriber revenue over the next few quarters.

That’s why guidance for 2022 calls for what looks like an anemic rate of growth for a so-called growth stock. Revenue this year is expected to fall between $125 million and $135 million. That’s only 12.4% – 21.4% above Matterport’s reported revenue for 2021 ($111.2 million).

A lack of profitability is another reason why investors have reservations about sending shares back up near past price levels. Non-generally accepted accounting principles (GAAP) losses per share are expected to rise from 23 cents in 2021, to between 47 cents and 52 cents this year.

Bottom Line on Matterport

To get back into high gear, Matterport needs to re-accelerate growth. In effect, finish the transition from license-based to subscription-based. It also needs to seriously narrow its losses, or begin showing positive earnings starting in 2023.

If this fails to happen? It will be difficult for shares to move beyond current prices. This of course is assuming that another tech sell-off doesn’t occur. While the argument I referenced above says tech stocks could keep rising, the other argument, that rising rates and decelerating earnings cause more multiple compressions, could still prevail. Coupled with investors remaining underwhelmed with Matterport’s fiscal performance, shares may just well take a trip to penny stock levels.

The jury’s still out whether MTTR stock holds steady, or drops again, in the coming months. But in terms of it making a substantial recovery, expect it to play out over a longer timeframe.

On the date of publication, Thomas Niel 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.

Thomas Niel, contributor for InvestorPlace.com, has been writing single-stock analysis for web-based publications since 2016.

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