Meta Materials (NASDAQ:MMAT) is a developer of functional materials and nanocomposite products headquartered in Dartmouth, Canada. It’s not a household name by any stretch. But meme rallies earlier this year took MMAT stock above the $20 level.
Underlying fundamentals leave a lot to be desired. Nevertheless, with a short interest ratio of 16.2%, one needs to examine this stock a bit closer. Considering we have already seen Reddit-induced rallies take MMAT stock to the promised land, the option to be complacent doesn’t exist. And given the long-term potential for its metamaterials technology, investors should expect this stock to trade at a premium.
According to one research report, the metamaterials market will reach $3.61 billion in 2027, representing a CAGR of 23.6%. But at a market cap of $1.50 billion, investors have already priced in much of the potential. Plus, the financials leave a lot to be desired. Revenues have dropped from approximately $1.3 billion in 2018 to just $2.5 million during the first quarter of 2021.
All of these factors make it a speculative play in my eyes. Money has been made on meme stocks. But investing in meme stocks is all about having effective exit and entry strategies. That’s not to say there aren’t some good Reddit stocks out there. However, investment decisions in this space are often based on gut feel rather than hard-nosed fundamental analysis.
Torchlight Energy No More
Torchlight Energy was a Plano-based oil & gas exploration firm. It was founded in 2007 and went public in 2010. The company has been struggling for a while. Before the pandemic, it struck oil and gas at one of its development wells in the Orogrande Basin in West Texas, near the Mexican and New Mexico borders. But after Covid-19 struck, Torchlight’s operations came under fire, and the company decided the best way forward would be to transform its business focus.
The company sought a merger with a Canadian company, Meta Materials, which had more than $1.6 million a year in organic revenue. Upon closing the merger, Metamaterial shareholders own 75% of the combined company, while Torchlight shareholders own 25%.
Meta Materials is primarily a development company at this stage, looking to scale up production. It generates most of its revenues from customer-funded development programs. The company undoubtedly has a very large market opportunity, although translating scientific advancements into commercial success has been challenging. That’s why there is skepticism among analysts. Mark Hake believes Meta is worth no more than the cash on its books, 84 cents per share. MMAT stock is changing hands for $4.13 as I write this.
Dana Blankenhorn, meanwhile, is warning investors not to fall for the hype. He points out that the company’s intellectual property “might have relevance in defense, automotive, and medical fields if Meta can find the right partners.”
However, as he points out, there are no developments on this end.
Limited Catalysts for MMAT Stock
Over the last several months, MMAT stock had two major catalysts that pushed up the stock price.
The first bump occurred when a rumor circulated on Reddit that Meta was working with Tesla (NASDAQ:TSLA). The second occurred as the Torchlight deal closed. Both of these events have very little to do with the company’s fundamentals. They did not come after an earnings beat or a joint venture announcement. This confirms MMAT as a meme stock for many analysts and investors.
MMAT reported little over half a million in revenue in its latest quarterly results and a market cap of more than $1.50 billion. It just doesn’t add up.
Eventually, MMAT stock will give away its gains. Limited catalysts ensure the divorce between fundamentals and market cap cannot last forever. Retail traders focused on the short term can certainly scalp profits. But there doesn’t seem to be a hook why investors should stick around for the long term. Buying based on a post or a press release might lead to some temporary gains. But they also evaporate very quickly.
As I mentioned in my intro, not every meme stock is a bad one. There are plenty of great picks among Reddit favorites that make sense on fundamentals. But there are plenty you wouldn’t touch with a ten-foot pole.
On the publication date, Faizan Farooque 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.
Faizan Farooque is a contributing author for InvestorPlace.com and numerous other financial sites. Faizan has several years of experience in analyzing the stock market and was a former data journalist at S&P Global Market Intelligence. His passion is to help the average investor make more informed decisions regarding their portfolio.