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

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

Though the company is working through various collaborative research and projects to accelerate its growth, the stock’s bloated valuation and inadequate financial strength could make investors worried.

Here’s what could influence MMAT’s performance in the near term:

Acquisition Can Drain Cash Reserves

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

However, this acquisition is expected to lead to a significant cash outlay in the near term, impacting MMAT’s already weak balance sheet.

Weak Financials

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 grew 185.2% from the year-ago value to $5.18 billion. Its loss per share increased 200% from the prior-year quarter to $0.03. In addition, its net cash used in operating activities surged 25.7% year-over-year to $5.61 billion for the six months ended June 30, 2021.

Its trailing-12-month asset turnover ratio of 0.01% is 98.8% lower than the industry average of 0.7%. Also, its ROA and return on total capital are negative 13.5% and 3.7%, respectively. Furthermore, MMAT’s cash from operations came in at a negative $9.06 million compared to the industry average of $112.30 million.

Stretched Valuation

In terms of trailing-12-months EV/Sales, MMAT is currently trading at 785.79x, significantly higher than the industry average of 4.41x. In addition, its trailing-12-months 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 proprietary POWR Ratings system. The POWR Ratings are calculated considering 118 different factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight different categories. MMAT has an F grade for Value and Stability. This is justified given the stock’s higher than industry valuation multiples and high volatility.

Also, the stock has a D grade for Quality, which is consistent with the stock’s negative profit margin.

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

Beyond what I’ve stated above, we have rated MMAT for Growth, Momentum, and Sentiment. Get all MMAT ratings here.

Bottom Line

While MMAT has been striving to boost its business growth through various collaborative projects and acquisitions, the company’s unstable financials and lofty valuation have caused its shares to plummet significantly since its listing. Moreover, with negative cash flows and poor profitability, we believe the stock is best avoided now.

How Does Meta Materials Inc. (MMAT) Stack Up Against its Peers?

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

MMAT shares were trading at $5.43 per share on Friday morning, up $0.13 (+2.45%). Year-to-date, MMAT has gained 287.86%, versus a 18.47% rise in the benchmark S&P 500 index during 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. More...

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