Is USA Rare Earth Worth a Second Look After Its Texas Permit Win and Recent Price Swings?

If you have been watching USA Rare Earth’s stock with curiosity, you are not alone. The last few months have been a wild ride for investors, and the stock’s recent swings are placing it firmly on many watchlists. After a rapid 34.7% jump over the past month, countered by a sharp 15.7% drop in just the last week, it is clear that market sentiment on this company is shifting quickly. Step back a bit further and you see the full picture: year to date, USA Rare Earth is up a stunning 94.4%, and over the past year, its share price has soared 123.1%. That kind of growth potential tends to spark questions. Is this momentum grounded in fundamentals, or are risk perceptions just catching up?

Fueling the latest price movement has been a series of regulatory updates, including the company securing a crucial permit for its Texas-based rare earth processing facility. This news appears to have injected new optimism into the outlook for domestic rare earth supply chains, helping USA Rare Earth differentiate itself in an increasingly strategic industry. At the same time, ongoing discussions in Washington about reducing dependence on foreign rare earth imports have given a tailwind to all U.S.-based producers, with USA Rare Earth right in the spotlight.

Of course, eye-catching returns often raise eyebrows around valuation. On a basic numerical score, where 1 point is added for each undervaluation check passed, USA Rare Earth clocks in at just 2 out of 6, suggesting only modest undervaluation by traditional measures. But do these methods capture the whole story, or could there be a smarter way to judge what the stock is truly worth? Let’s dig into the major valuation approaches first, and then explore whether there’s an even better lens to look through.

USA Rare Earth scores just 2/6 on our valuation checks. See what other red flags we found in the full valuation breakdown.

Approach 1: USA Rare Earth Discounted Cash Flow (DCF) Analysis

The Discounted Cash Flow (DCF) model estimates a company’s intrinsic value by projecting its future cash flows and discounting them back to today’s value. This approach helps determine what the business is theoretically worth right now based on expectations of its ability to generate cash in the years ahead.

For USA Rare Earth, current free cash flow sits at -$31.48 Million, reflecting that the company is still ramping up operations. Over the next decade, forecasts show significant growth, with free cash flow projected to reach as high as $573.52 Million by 2035. The nearer-term projections, based on analyst estimates, flip from negative to positive by 2028. The longer-range numbers are modeled by Simply Wall St using industry-based assumptions.

Based on these projections, the DCF calculation yields an intrinsic value of $80.33 per share. Compared to the current stock price, this implies the stock is trading at a 70.1% discount. This could indicate that the stock is undervalued if these optimistic forecasts are realized.

Result: UNDERVALUED

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

Our Discounted Cash Flow (DCF) analysis suggests USA Rare Earth is undervalued by 70.1%. Track this in your watchlist or portfolio, or discover more undervalued stocks.

Approach 2: USA Rare Earth Price vs Book

The Price-to-Book (P/B) ratio is a popular valuation metric for capital-intensive and asset-rich companies, particularly in the resources sector. It helps investors gauge whether a stock is trading above or below the value of its net assets, making it useful when companies are not yet profitable but have significant tangible value on their balance sheet.

Growth expectations and risk levels play big roles in what is considered a “normal” or “fair” P/B ratio. Fast-growing or lower-risk companies can justify higher multiples, while riskier or slow-growth firms may trade at lower ones. For USA Rare Earth, the current P/B ratio stands at -17.46x. This is notably lower than the peer average of 15.31x and the broader Metals and Mining industry average of 2.35x. Part of this reflects its status as a pre-profit, early-stage company.

To sharpen the comparison, Simply Wall St’s proprietary “Fair Ratio” takes into account a wider range of factors such as the company’s earnings growth outlook, profit margins, industry landscape, risks, and market cap to determine what multiple would be justified in today’s conditions. This approach offers a more tailored perspective because raw peer and industry averages may overlook the unique nuances of each business.

In USA Rare Earth’s case, the Fair Ratio and the actual P/B ratio differ substantially, suggesting the stock is trading well below what would be considered fair even after factoring in company-specific risks and potential. This points to a potential undervaluation by this metric.

Result: UNDERVALUED

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

Upgrade Your Decision Making: Choose your USA Rare Earth Narrative

Earlier we mentioned that there is an even better way to understand valuation. Let's introduce you to Narratives. A Narrative, in simple terms, is the perspective or “story” that an investor builds about a company, connecting their own fair value, forecasts for future revenue, earnings and margins with the company’s direction. This approach doesn’t just crunch numbers; it links a company’s unique journey to a specific financial forecast and resulting fair value, making your investment thesis personal and actionable.

Narratives are available on Simply Wall St’s Community page, where millions of investors use them as an easy and accessible decision-making tool. They allow you to see how your fair value compares to the current share price, so you can decide when you believe it is time to buy or sell. Narratives also update dynamically in response to new information, such as news events or fresh earnings reports, helping you keep your outlook current.

For example, while one investor’s Narrative for USA Rare Earth might forecast a fair value of $125 per share based on aggressive growth assumptions, another might see only $65 per share due to more conservative expectations.

Do you think there's more to the story for USA Rare Earth? Create your own Narrative to let the Community know!

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.

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