At The Mercy of the Market, Be Careful With Matterport Stock

After a sharp move lower, Matterport (NASDAQ:MTTR) stock is bouncing back. “Meta madness” sent it zooming higher in November. But with the omicron and Federal Reserve fueled growth stock selloff earlier this month, investors bailed on this spatial data platform operator.

Trading for as much as $37.60 on Dec. 1, it fell to as low as $20.16 on Dec. 15. Yet since then, the market has tried again to shake off pandemic and Fed-related fears. In turn, this growth stock is moving higher again. As I write this, it’s changing hands for around $24.25 per share.

So, with this rebound, what’s the best move?

As it’s a promising growth story, with a metaverse catalyst to boot, it may seem like a tempting buy. Still, the jury’s still out whether more declines are in store for growth stocks. It may be best to tread carefully in the near-term.

If you’re looking to make a long-term bet on digitalization trends, there’s no harm in locking down a position today. Just keep one thing in mind: high uncertainty continues to impact growth stocks.

With this volatility, MTTR stock may make a trip back to $15 per share before it starts to hit new highs again.

The Latest With MTTR Stock

Growth stocks are bouncing back, attempting to shake off worries that the Fed’s tapering and “interest rate liftoff” plans will cause richly-priced high-fliers to give back a large chunk of their pandemic-era gains.

Also, a company-specific development may be helping to renew bullishness for MTTR stock. As my InvestorPlace colleague Will Ashworth discussed recently, the company’s redemption of public warrants was good news for investors. Causing negligible dilution, this move likely added tens of millions to its war chest of growth capital.

Beyond recent developments, the “story” behind Matterport remains intact. For now, its not so much about the metaverse angle. Instead, the growth of its main offering (the ability to create a 3-D “digital twin” of a physical object/place) is its main catalyst.

Strong revenue growth, helped by its move to a software as a service (SaaS) based revenue model, could help send it higher in the long-term. However, brace yourself for the near-term. Even if things are calming down now, markets could stay rocky in 2022.

Why Matterport Could Still Sink Back to Its Past Lows

When it comes to growth names like MTTR stock, it’s easy for value-oriented investors like myself to miss the forest for the trees. Trading for 36.6x 2022 revenue estimates, it’s easy to write it off as “overhyped,” and “priced for perfection.” In short, a stock where downside risk far exceeds its potential to gain.

That said, I’ll admit that, if market conditions are favorable to growth stocks, and the company delivers results and guidance for this quarter that are much better than last quarter’s numbers, then the stock could continue to climb higher.

However, the key phrase here is: “market conditions are favorable to growth stocks.”

It’s still unclear whether that’s going to be the case in 2022. As the issues at hand today carry on into the coming year, market volatility will likely remain high. Instead of continuing to recover from its recent losses, and jolting to prices well above its all-time high, Matterport stock could experience more sharp moves lower. Perhaps, back down to where it was when the special purpose acquisition company (SPAC) deal that took it public closed last July (just under $15 per share).

For long-term minded investors, this volatility may not be a big deal.

If you’re bullish that it can scale its platform into a multi-billion dollar enterprise, and find big success as the metaverse takes off? Then big drawdowns from today’s prices won’t matter much in hindsight. Yet if you can’t handle this type of volatility, it’s probably best not to hold it, especially when the market’s no longer in “another day, another record high” mode.

Ahead of Continued Volatility, Tread Carefully

While leaning bearish on it, I still consider this former SPAC one of the better ones in this category. Many early stage names that went public the blank-check company route over the past year made big promises in their merger slide decks. Few have delivered so far.

Matterport, however, seems likely to live up to the ones it made. Digitalization trends favor the continued growth of its platform, which as it becomes a SaaS-based revenue model, could sport high margins. High exposure to the metaverse trend also bodes well for the long-term. Assuming it’s truly the next big thing, and not the latest flavor-of-the-month trend.

Even so, with its rich valuation dependent on the market remaining bananas for growth stocks, it’s best to be careful. If investors continue to move out of speculative growth plays, another big drop may be in store for MTTR stock.

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