- Meta Materials (MMAT) has delivered mixed first-quarter 2022 financial results, but fundamental red flags remain.
- Despite strong revenue growth, it is not able to deliver profits and net losses have widened.
- Analysts are bullish on MMAT stock, but they are wrong, as it is too pricey.
Meta Materials (NASDAQ:MMAT) invents, designs, develops and manufactures various functional materials and nanocomposites. It reported its first-quarter 2022 results on May 10, and while there were some good aspects, the bad news dominates the analysis. With this and its full-year performance in mind, I consider MMAT stock to be a clear sell.
Shares of Meta Materials have lost 30% in 2022 and 57% over the past year. But recently, there has been a 5-day rally of 24% and a one-month rally of nearly 48%, with a closing price just under $2 on May 23. However, this rally does not have what it takes to be sustainable and seems very fragile now.
Mixed Earnings Do Not Justify the Rally
In the first quarter of 2022, Meta Materials reported total revenue of $2.9 million compared to revenue of $596,303 in the prior-year quarter. This is huge growth of 399%.
On top of that, its net loss was $18.4 million, or 6 cents per share. That’s compared to a net loss of $44.2 million, or 26 cents per share, in the same quarter a year ago.
If you are thinking that net loss narrowed and this is good news, look at the number of shares outstanding. In Q1 2021, there was a weighted average of 168.8 million shares. In Q1 2022, that number increased to 285.2 million. That is a substantial increase of nearly 69% in one year, which is a considerable stock dilution.
MMAT Stock Saw Sustained Net Losses
Meta Materials bulls will argue it has experienced strong revenue growth over the past two consecutive years and in the latest quarter. This is true. There are, however, three key metrics that provide solid reasons to be bearish.
The first reason for this is its widening net losses for the past five years. In 2017, its net loss was $919,910 and in 2021 it ballooned to a drop of $91.85 million. Second, its loss from operations in Q1 2022 increased to $17.4 million compared to a loss from operations of $4.2 million in Q1 2021.
The same trend of wider losses from operations exists for Meta Materials’ full-year 2021 financial results. The company cannot make a profit from its core business operations, which is a very negative key metric.
Third, Meta Materials has a cash burn problem. It has less than one year of cash runway based on its current free cash flow trend. Its considerable stock dilution is another factor against it, as well.
Why Analysts Are Wrong About MMAT Stock
The one-year price target for MMAT stock is $3.50. I believe this has very slim chances of materializing, as the stock does not present good fundamentals.
Its forward enterprise-value-to-sales (EV/sales) ratio of 45.9x has a difference of more than 1,500% compared to the median value of 2.8 for the Information Technology sector. On top of that, its forward price-to-sales (P/S) ratio for the stock is also at a very large premium — a difference of 1,400% compared to the median value of the sector.
In the end, investors should avoid MMAT stock now, as the company cannot turn its sales growth into profits.
On Penny Stocks and Low-Volume Stocks: With only the rarest exceptions, InvestorPlace does not publish commentary about companies that have a market cap of less than $100 million or trade less than 100,000 shares each day. That’s because these “penny stocks” are frequently the playground for scam artists and market manipulators. If we ever do publish commentary on a low-volume stock that may be affected by our commentary, we demand that InvestorPlace.com’s writers disclose this fact and warn readers of the risks.
On the date of publication, Stavros Georgiadis, CFA 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.