Blog

• Curious whether MP Materials stock is actually a bargain right now? You are not alone. With so much buzz around this company, it pays to dig deeper before making any moves.

• MP Materials’ share price is up an eye-catching 257.8% so far this year and an impressive 220.8% over the last 12 months, even after a sharp 27.4% pullback in the past month.

• Big headlines recently have focused on MP Materials’ strategic role in the global rare earth supply chain. Government initiatives and trade discussions have put a spotlight on American rare earth production, fueling both investor excitement and debate about future risks.

• When we run MP Materials through our quick valuation checks, it scores just 1 out of 6 for being undervalued. Next, we will look at what these different valuation methods reveal, but hang around until the end for a smarter way to interpret the numbers.

MP Materials scores just 1/6 on our valuation checks. See what other red flags we found in the full valuation breakdown.

A Discounted Cash Flow (DCF) model estimates what a company is worth today by projecting the business’s future cash flows and discounting those amounts back to their present value. This method aims to find the intrinsic value using cash flow projections and analysts’ outlook.

Looking at MP Materials, its latest reported Free Cash Flow is negative, at approximately $-294.5 million. Analysts project a notable turnaround ahead, forecasting Free Cash Flow to climb to about $53.3 million by 2027. For the following years, projections continue to surge, eventually reaching over $599 million in 2035, with most of these longer-term figures derived from Simply Wall St’s extrapolations beyond analyst coverage.

After crunching the numbers using this two-stage DCF approach, MP Materials’ intrinsic value comes out to $41.31 per share. However, when compared to its current share price, the DCF indicates the stock is around 41.9% overvalued.

This suggests that investor enthusiasm may be well ahead of the modeled financial reality.

Result: OVERVALUED

Our Discounted Cash Flow (DCF) analysis suggests MP Materials may be overvalued by 41.9%. Discover 885 undervalued stocks or create your own screener to find better value opportunities.

Head to the Valuation section of our Company Report for more details on how we arrive at this Fair Value for MP Materials.

For companies that are not yet consistently profitable, Price-to-Sales (P/S) is often the go-to valuation multiple. It helps investors assess how the market values each dollar of revenue. This is a sensible approach for growth-stage firms with limited or negative earnings.

However, a “fair” P/S multiple is not the same for every business. Companies with higher growth potential and lower risk generally deserve a higher P/S, while more mature or riskier firms tend to see lower valuations. That is why it is critical to benchmark any number against both industry norms and factors unique to the company.

Currently, MP Materials trades at a lofty 44.65x P/S, vastly exceeding the Metals and Mining industry average of just 2.59x and its peer average of 0.70x. Superficially, this suggests that MP is priced far above its sector, possibly implying stretched expectations or unique business qualities.

This is where the Simply Wall St “Fair Ratio” comes in. The Fair Ratio for MP Materials is 2.54x, reflecting a proprietary model that weighs factors like future growth, profit margin, industry dynamics, company size, and risk. By adjusting for these elements, the Fair Ratio provides a more tailored benchmark than relying solely on peer or industry figures.

With MP Materials’ actual P/S of 44.65x towering over its Fair Ratio of 2.54x, the stock appears richly valued even after considering all its growth prospects and risks.

Result: OVERVALUED

PS ratios tell one story, but what if the real opportunity lies elsewhere? Discover 1411 companies where insiders are betting big on explosive growth.

Earlier, we mentioned an even better way to interpret valuations. Let us introduce you to Narratives, a smarter tool designed to help you make sense of a company’s story and numbers together.

A Narrative is simply your perspective: it is the story you believe about a company’s future, tied directly to your own forecasts of revenue, earnings, and margins, and ultimately to what you think is a fair value for the stock.

Narratives transform abstract financial models into easy-to-understand scenarios by connecting the dots between what is happening in the real world and what that means for a company’s growth prospects and share price potential.

This means you do not need to be a professional analyst. On Simply Wall St’s Community page, you can create, compare, and update Narratives using tools already trusted by millions of investors.

Narratives evolve as new information is released, like news or earnings, keeping your view as up-to-date as the market itself.

For MP Materials, one investor’s Narrative might focus on optimistic government contracts and forecast a fair value as high as $85, while another might stress risks from customer concentration or regulation and set their fair value closer to $65. This shows how your own story, not just the numbers, can drive investing decisions.

Do you think there’s more to the story for MP Materials? Head over to our Community to see what others are saying!

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

Companies discussed in this article include MP.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com