Technology stock

Are meta materials a good tech stock to add to your portfolio?

Meta Materials Inc. (MMAT) is a Canadian smart materials and photonics company engaged in the development and manufacturing of a wide range of functional materials and nanocomposites. On June 28, 2021, the company went public through a reverse takeover dealing with the energy company Torchlight Energy Resources.

The stock is down 30.6% over the past three months and 9.3% over the past month to close yesterday’s trading session at $5.30.

Although the company is working on various research and collaborative projects to accelerate its growth, the stock’s inflated valuation and insufficient financial strength could worry investors.

Here is what could influence the performance of MMAT in the short term:

Acquisition may deplete cash reserves

This month, MMAT acquired Nanotech Security Corp., a leader in the development of secure and visually memorable nano-optical security features that provide anti-counterfeiting solutions used in the government, banknote and cash markets. brand protection through an all-cash transaction valued at approximately C$90.9 million on a fully diluted basis. This acquisition could boost MMAT’s growth and leadership position in the commercialization of metamaterials.

However, this acquisition is expected to result in a significant short-term cash outflow, impacting MMAT’s already weak balance sheet.

Financial weakness

MMAT’s operating expenses increased 90.4% year-over-year to $5.08 billion in the second quarter ended June 30, 2021. The company’s net loss increased by 185. 2% from the previous year’s value to $5.18 billion. Its loss per share rose 200% from the year-ago quarter to $0.03. Additionally, its net cash used in operating activities jumped 25.7% year-over-year to $5.61 billion for the six months ended June 30, 2021.

Its 12-month asset turnover rate of 0.01% is 98.8% below the industry average of 0.7%. Moreover, its ROA and return on total capital are negative at 13.5% and 3.7%, respectively. Additionally, MMAT’s cash flow from operations was negative $9.06 million compared to the industry average of $112.30 million.

Extended valuation

In terms of trailing 12-month EV/sales, the MMAT is currently trading at 785.79x, significantly above the industry average of 4.41x. Additionally, its 12-month price/sales of 295.93x is 6,883% higher than the industry average of 4.24x.

Unfavorable POWR ratings

MMAT has an overall F rating, which equates to Strong Sell in our own POWR Rankings system. POWR ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.

Our proprietary scoring system also rates each stock against eight different categories. MMAT has an F rating for value and stability. This is justified given the stock’s valuation multiples that are higher than those of the sector and its high volatility.

Also, the stock has a D rating for quality, which corresponds to the negative profit margin of the stock.

Among 45 B-rated stocks Technology – Electronics industry, MMAT is ranked #42.

Beyond what I said above, we rated MMAT for growth, momentum, and sentiment. Get all the MMAT scores here.

Conclusion

While MMAT strives to drive the growth of its business through various collaborative projects and acquisitions, the company’s unstable finances and high valuation have caused its shares to drop significantly since its listing. Additionally, with negative cash flow and low profitability, we think the stock is best avoided now.

How does Meta Materials Inc. (MMAT) compare to its peers?

Although MMAT has an overall POWR rating of F, you might want to consider looking at industry peers AstroNova Inc. (MANY) and Brother Industry Ltd (BRTHY), which have an A (Strong Buy) rating.


MMAT shares were trading at $5.43 per share Friday morning, up $0.13 (+2.45%). Year-to-date, the MMAT has gained 287.86%, compared to an 18.47% rise in the benchmark S&P 500 over the same period.

About the Author: Pragya Pandey

Pragya is an equity research analyst and financial journalist with a passion for investing. In college, she majored in finance and is currently pursuing the CFA program and is a Level II candidate. Following…

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