Overvalued Meta Materials Will Drop 84% to Cash Per Share Value
Meta Materials (NASDAQ:MMAT) is a Canadian company that recently listed on the Nasdaq via a SPAC (special purpose acquisition corporation) reverse merger. To put it bluntly, MMAT stock is the kind of highly speculative stock you ought to avoid.
This high-tech company develops nanocomposite materials and products. The debt-free company announced it had closed the deal on June 28 and received $160 million in cash from various parties.
The problem is the market is putting too high a price on Meta Materials. One month after the SPAC merger, its market value at $3.56 per share as of July 29, is $1.014.6 billion. This is because the company reported that it now has 285 million shares outstanding. S0, using these figures, $3.56 times 285 million shares gives it a $1.015 billion market capitalization. That is simply too high.
The company has very little sales to speak of: over the past year, it made just over $1 million in revenue and lost more than $55 million, according to The Motley Fool.
Meanwhile Seeking Alpha reports that Meta Materials has three products in development:
“Metamaterial [sic] has some interesting products at the moment. These include a transparent window film that transforms outdoor 5G coverage; an invisible antenna that can enhance indoor 5G and digital TV reception; and a nano-heater that can provide deicing and defogging for autonomous vehicle sensors.”
The company’s slide deck also describes these three product areas in more detail. However, other than its cash and affiliations with several large brand names, MMAT doesn’t have much in the way of prospects.
How To Value Meta Materials
The easiest and safest way to value Meta Materials stock is to start with its cash per share. So if we divide the $160 million it has in the bank by 285 million shares, that gives us 56 cents per share. Needless to say, at $3.56 per share, MMAT is 84% overvalued.
Why do I say this? First, the company is likely to continue to burn through cash. The Motley Fool reports that its burn rate was $9.2 million for the technology business but I have not been able to confirm this in its documents.
However, page 20 of the slide deck indicates that revenue in Q1 was CAD 756K, or about $604K in US dollars. But it lost a lot of money. Not including a CAD 55 million write-off, the company lost CAD 4.06 million (US$3.25 million). And unlike many other SPAC deals, the company’s slide deck does not provide any forecasts about future revenues. So we can only assume that cash burn will continue for the time being.
What To Do With MMAT Stock
If you are impressed by the company’s technology, you might consider taking a position. But the problem is there is no rational way to value its tech business. All that we are left with is the value of its cash. Maybe if the company announces some new contracts or even prospective contracts there might be a way to give the tech business some real value.
This leaves us with the view that its cash per share, which is likely to fall as cash burn continues, is the only real price for the company. That means waiting for MMAT stock to fall well below $1 per share, or its cash per share of 56 cents.
Most investors, excluding those willing to lose money on a speculative stock, should stay away until MMAT falls much further.
On the date of publication, Mark R. Hake did not hold any position in any of the securities mentioned in the article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Mark Hake writes about personal finance on mrhake.medium.com and runs the Total Yield Value Guide which you can review here.
