MP Stock Hits New High Then Plummets. This Is a Crazy Situation.

The Mountain Pass mine, operated by MP Materials. (Joe Buglewicz/Bloomberg)

Shares of rare-earth miner MP Materials are on an incredible tear. They were higher in Wednesday trading, again, before dropping sharply after the company announced a stock sale.

It has been a wild few days for investors in what feels like an unprecedented situation. Valuing a company changing as fast as MP Materials is no easy feat.

MP Materials stock traded as high as $61.13 on Wednesday and ultimately closed up 0.6% at $58.55. The S&P 500 finished 0.3% higher and the Dow Jones Industrial Average gained 0.5%.

The stock marked a new record close, surpassing the record high it set one day prior. Through Wednesday trading, shares have gained about 70% over the past month, and more than 270% this year.

Shares, however, dipped 5.5% to $55.31 after hours, following the company’s announcement of a $500 million stock sale. MP “currently intends to use the net proceeds from the Offering to fund the acceleration and expansion of our operations, including the 10X Facility, for strategic growth opportunities and for general corporate purposes,” said the company in a news release.

The 10X facility is MP’s second domestic magnet-making facility, announced on July 10, following a blockbuster investment by the Defense Department. MP shares jumped 51% the day of the announcement, adding to the stock’s remarkable run.

It isn’t hard to figure out why investors bid up shares. For starters, threats by China to restrict rare-earth exports amid rising trade tensions with the U.S. put investors’ focus on domestic production of rare-earth metals, a list of more than a dozen elements that end up in items such as magnets and displays.

China dominates rare-earth materials, refining some 85% of the global total. MP Materials is the largest rare-earth producer in the Western Hemisphere, making neodymium and praseodymium oxides, used in high-end magnets. Some of its raw materials end up in China, but that’s changing. MP Materials refines about 40% of its feedstock now.

The China scare developed into real business consequences. After the DoD deal, Apple signed an agreement with MP Materials, providing capital for access to non-Chinese material. The deal with the Pentagon included a price floor for MP Materials’ product to ensure that China couldn’t flood the market, depressing rare-earth prices and weighing on MP Materials’ returns. Apple’s agreement will help improve rare earth recycling in the U.S.

It’s all good news, but it left investors in a tough spot. How do they value a company that essentially tripled overnight with a completely new pricing structure? Baird analyst Ben Kallo now projects 2027 earnings before interest, taxes, depreciation, and amortization, or Ebitda, of $554 million. The Wall Street consensus aggregated by FactSet was closer to $200 million just a few days ago.

Kallo’s estimate valued MP Materials at about 20 times 2027 Ebitda. Though with the additional shares, that multiple ticks up about 21 times, all else being equal.

It’s a steep price. Southern Copper trades for about seven times estimated 2027 Ebitda. Investors expect more growth in U.S. rare-earth production and consumption than for copper, however. Australia’s rare-earth miner Lynas is valued at about 13 times estimated 2027 Ebitda.

How high MP Materials estimates will go with the template for supply deals laid out by the Pentagon is anyone’s guess. Investors also need to understand the capital needs of the company, and how many shares will be outstanding in 2027 and beyond. It isn’t an easy situation to model.

What investors know for sure is that things are good right now for MP Materials. The company knows that, too—it just sold stock.

Overall, 73% of analysts covering the stock have Buy ratings. The average Buy-rating ratio for stocks in the S&P 500 is about 55%, according to FactSet. The average analyst price target, however, is just $38. Wall Street has had trouble catching up.

Canaccord’s George Gianarikas on Tuesday raised his target price to $64, the highest on the street. Just last week he had raised it to $55.

Write to Al Root at allen.root@dowjones.com