Here's Why MP Materials (NYSE:MP) Has Caught The Eye Of Investors

It's common for many investors, especially those who are inexperienced, to buy shares in companies with a good story even if these companies are loss-making. But the reality is that when a company loses money each year, for long enough, its investors will usually take their share of those losses. Loss making companies can act like a sponge for capital - so investors should be cautious that they're not throwing good money after bad.

If this kind of company isn't your style, you like companies that generate revenue, and even earn profits, then you may well be interested in MP Materials (NYSE:MP). Even if this company is fairly valued by the market, investors would agree that generating consistent profits will continue to provide MP Materials with the means to add long-term value to shareholders.

Check out our latest analysis for MP Materials

How Fast Is MP Materials Growing Its Earnings Per Share?

Over the last three years, MP Materials has grown earnings per share (EPS) at as impressive rate from a relatively low point, resulting in a three year percentage growth rate that isn't particularly indicative of expected future performance. Thus, it makes sense to focus on more recent growth rates, instead. MP Materials boosted its trailing twelve month EPS from US$1.17 to US$1.36, in the last year. This amounts to a 16% gain; a figure that shareholders will be pleased to see.

One way to double-check a company's growth is to look at how its revenue, and earnings before interest and tax (EBIT) margins are changing. While MP Materials did well to grow revenue over the last year, EBIT margins were dampened at the same time. So it seems the future may hold further growth, especially if EBIT margins can remain steady.

You can take a look at the company's revenue and earnings growth trend, in the chart below. For finer detail, click on the image.

In investing, as in life, the future matters more than the past. So why not check out this free interactive visualization of MP Materials' forecast profits?

Are MP Materials Insiders Aligned With All Shareholders?

Insider interest in a company always sparks a bit of intrigue and many investors are on the lookout for companies where insiders are putting their money where their mouth is. That's because insider buying often indicates that those closest to the company have confidence that the share price will perform well. However, insiders are sometimes wrong, and we don't know the exact thinking behind their acquisitions.

The good news for MP Materials is that one insider has illustrated their belief in the company's future with a huge purchase of shares in the last 12 months. In one big hit, Chief Operating Officer Michael Rosenthal paid US$382k, for shares at an average price of US$21.63 per share. Big insider buys like that are a rarity and should prompt discussion on the merits of the business.

Along with the insider buying, another encouraging sign for MP Materials is that insiders, as a group, have a considerable shareholding. Indeed, they have a considerable amount of wealth invested in it, currently valued at US$452m. Investors will appreciate management having this amount of skin in the game as it shows their commitment to the company's future.

While insiders are apparently happy to hold and accumulate shares, that is just part of the big picture. The cherry on top is that the CEO, James Litinsky is paid comparatively modestly to CEOs at similar sized companies. The median total compensation for CEOs of companies similar in size to MP Materials, with market caps between US$2.0b and US$6.4b, is around US$6.8m.

MP Materials' CEO took home a total compensation package of US$1.6m in the year prior to December 2022. That looks like a modest pay packet, and may hint at a certain respect for the interests of shareholders. CEO remuneration levels are not the most important metric for investors, but when the pay is modest, that does support enhanced alignment between the CEO and the ordinary shareholders. It can also be a sign of good governance, more generally.

Does MP Materials Deserve A Spot On Your Watchlist?

As previously touched on, MP Materials is a growing business, which is encouraging. In addition, insiders have been busy adding to their sizeable holdings in the company. These factors alone make the company an interesting prospect for your watchlist, as well as continuing research. Still, you should learn about the 1 warning sign we've spotted with MP Materials.

The good news is that MP Materials is not the only growth stock with insider buying. Here's a list of them... with insider buying in the last three months!

Please note the insider transactions discussed in this article refer to reportable transactions in the relevant jurisdiction.

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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.