MTTR stock investors will endure the pain before the long-term gains pile in
Downward revisions to revenue growth forecasts have seriously hurt from Matterport (NASDAQ:MTTR) share price. Shares are down around 79% from their November 2021 highs around $33. The price is in a precipitous plunge that accelerated when the company announced more chilling operating losses last month. Top corporate insiders bought the decline in MTTR shares in February. Could better times be coming in 2022?
Matterport is a rapidly growing spatial data company that is at the forefront of digitizing and indexing the real world. Its treasure trove of 3D data creation and modeling patents ensures an interesting future for the company. The value of its offerings will be unlocked more as the growth of the metaverse accelerates. However, investors in MTTR stocks could still feel more pain before the long-term gains accumulate.
Regarding the downward revisions to growth prospects
Matterport management launched a wave of downgrades to the company’s near-term growth outlook in November. Nothing has remained the same since then.
The company lowered its previous sales forecast of $120-126 million to a lower range of $107-110 million. As a slight positive, Matterport reported revenue of $111.7 million for 2021 in a February earnings report.
Management’s latest forecast calls for 17% sales growth in a range between $125 million and $135 million in 2022.
Wall Street analysts recently lowered their MTTR revenue and earnings forecasts. Any fundamental valuation measure that uses company sales estimates as input would therefore indicate falling MTTR stock prices.
But that’s not all.
Matterport’s latest earnings release last month revealed a growing disconnect between revenue growth and operating profits that could kill retail investor enthusiasm in the near term.
Beware of a decline in operating profits
The growing turnover of the company is currently accompanied by exponentially greater operating losses. The two recent sequential declines in quarterly sales during the second half of 2021 are even more concerning.
Investors may be concerned with the drop in quarterly sales from $29.5 million in June to $27 million in December. Operating losses increased from $5.78 million to over $95 million during the same period.
Although the company has survived a decade of development since 2011 and has shown some growth potential in 2021, there is no guarantee that massive investments in scaling up operations will produce the desired result: profits.
That said, insiders seem confident.
Insiders picked up MTTR stock in February
In a move that could only be bullish for MTTR shares, knowledgeable insiders bought the drop in Matterport shares last month.
RJ Pittman, President and CEO of Matterport bought back 40,000 shares worth more than $272,000 in February at prices below $7 per share. Pittman’s transaction followed the adviser Acquisition by Peter Hebert of 20,000 shares worth $127,500 the day before.
Insiders know the company best and usually invest in their own company’s stock for a good reason: their belief that the company will prosper and its stock price will rise over the long term.
That said, insiders still hold too little of a stake in the company. The total insider interest, excluding that of non-executive director Jason Krikorian, remains below 5%. Venture capitalists and private equity firms own 15.75% of the outstanding MTTR shares. Other institutional investors control less than 22%. The general public is therefore the majority shareholder of the company.
One could argue that there is perhaps a bit of an alignment of management and shareholder interests. Insiders apparently have too little skin in the game. However, insiders have invested their time and their best career years in the company and they are increasing their stakes in MTTR using personal funds. This is perhaps a big vote of confidence for Matterport that the market should recognize right now.
More pain ahead of gains for MTTR stock investors
Technical indicators show negative momentum on Matterport stock in the short term. Investors could see further MTTR weakness as stocks look for a new low. Additionally, the company is still in investment overdrive and it is hire more staff to build capacity. Operating losses could worsen before revenue growth rescues the income statement. The valuation could remain moderate.
That said, investors with a high risk tolerance can still buy the cheapest stocks and steer clear of the high volatility that has been compounded by market jitters as geopolitical risks shake traders’ confidence.
Matterport shares look cheap with an enterprise value to sales multiple (EV/Sales) of 10.2, well below its larger competitors. Unit Software (NYSE:you) has a Next Twelve Month (NTM) EV/Sales multiple of 16.2 while ANSYS (NASDAQ:ANSS) has a comparable multiple of 12.9.
Not only do Matterport shares have a lower valuation multiple, but the company also has no debt in its capital structure, which limits equity risk for investors.
Key takeaway for investors
Matterport’s all-in-one 3D data platform allows anyone to create an immersive digital twin of any space. The real estate world is showing significant interest in adopting his offerings. The company could see more public adoption as metaverses erupt on Web 3.0, the next-generation Internet.
That said, the company is going through a high-risk phase while investing heavily in its capacity. Stocks may trade sideways as weak hands are bailed out. If management’s latest aggressive efforts bear fruit, patient investors could reap sizable returns.
As of the date of publication, Brian Paradza had (neither directly nor indirectly) any position in the securities mentioned in this article. The opinions expressed in this article are those of the author, subject to InvestorPlace.com publishing guidelines.