MP Materials Has Collapsed 60% From Its Highs. Here's Why I'm Not Buying (Yet).

MP Materials, a rare-earth mining company, has seen a 60% drop in stock price from its October high of $100 to the current $40. Analysts expect a rebound, with the average price target at $71. However, the company faces challenges due to China's dominance in the global rare-earth market, making it difficult for American firms to compete on price.

To mitigate this risk, the U.S. government has entered into a 10-year agreement with MP Materials, guaranteeing a minimum price of $110 per kilogram for its key product, neodymium-praseodymium (NdPr). This price floor is crucial for MP's growth, as it accounts for over 60% of the company's adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA).

While the government support is valuable, it raises questions about valuing MP's stock based on its own earnings. The Pentagon's price floor is a real income source, but investors should also consider whether MP can generate substantial profits independently. With 9 years left on the price floor, the company has time to prove its ability to thrive without government assistance.