In my most recent articles on Matterport (NASDAQ:MTTR), I’ve taken a bearish view on the stock. But I haven’t been bearish on MTTR stock primarily because of the firm’s prospects.
Instead, my view has been that the richly-priced shares have more room to fall because the market has been shunning pricey growth stock on the heels of rising interest rates.
Along with this has come a continued exodus of meme investors from the shares. That group had bought the stock primarily because of Matterport’s connection to the metaverse . But since MTTR stock has seemingly found a floor around $8 per share, I admit that it does look somewhat tempting.
Then again, the Federal Reserve could become even more hawkish than expected, applying more pressure to growth stocks. As a result, Matterport, whose shares are still expensive, could drop much further.
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In addition, the company’s ability to keep growing rapidly is quite questionable. Yet as I’ve written before, the shares are still expensive, so it’s better to wait for them to drop further.
MTTR Stock and its Uncertain Rebound Potential
Trading for just over $8 today, Matterport may appear set to rebound. And investors’ worries about rate hikes seem to have cooled, allowing “risk-on” assets like growth stocks and cryptocurrencies to bounce back.
To some degree, that makes sense. If the Fed only raises rates by 0.25 percentage points three times this year, real rates (interest rates minus inflation) will stay negative. In that scenario, equities would continue to be the only game in town. Consequently, high-growth names, including MTTR stock, would be able to trade at even frothier valuations than today.
However, the Fed could, as many forecasters now believe, raise interest rates seven times this year. After all, the central bank has bluntly said that it’s keeping its options open. In that scenario, “risk-on” assets could tumble much further.
Also, who’s to say that Matterport is still a growth play? The company’s growth outlook remains highly uncertain.
Evaluating Matterport’s Main Business
Speculators have become less enamored with the metaverse catalyst that some say will boost MTTR stock. With this catalyst no longer in the spotlight, investors’ focus has returned to the company’s main business.
Matterport, whose platform enables subscribers to create 3D “twins” of real estate assets, appears to have strong growth potential. In his recent bullish research note on the stock, Deutsche Bank analyst Bhavin Shah estimated the company’s total addressable market (TAM) at $240 billion.
Also, Matterport may be able to monetize the spatial data captured on its platform in ways beyond selling subscriptions to landlords, realtors, and consumers.
On the other hand, the company’s ability to rapidly capture a large share of its TAM is questionable. Analysts, on average, estimated that its growth slowed last quarter. It’s uncertain whether the slowdown was triggered by its change from a license-based to a SaaS-based business model. Also uncertain is whether its growth will slow as the pandemic eases.
These uncertainties are not being entirely discounted in the valuation of the stock, which trades for 21.4 times analysts’ mean 2021 revenue estimate and 14.5 times their average 2022 revenue estimate.
The Bottom Line on MTTR Stock
Some investors may be afraid of “missing out” on a rally by Matterport if they wait for its shares to drop further.
Yet there’s no guarantee that the stock will rebound anytime soon. The Fed may hike rates as much as seven times this year, and this stock, whose valuation remains elevated, could plunge again.
And Matterport could report disappointing results next week, pushing it down to what I consider its “buy zone,” which is around $5 per share.
In light of all of these points, investors should be careful with MTTR stock.
On the date of publication, Thomas Niel did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Thomas Niel, a contributor for InvestorPlace.com, has been writing single-stock analysis for web-based publications since 2016.
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