Why USA Rare Earth Stock Bounced Back Today

What goes up must come down. Apparently, it must also go back up again.

USA Rare Earth (NASDAQ: USAR) stock soared 8% Monday after the Commerce Department loaned the company $1.3 billion, and paid $277 million for an equity stake.

The stock then U-turned on worries the government wouldn't subsidize USA Rare Earth with price guarantees. By close of trading yesterday, the stock had lost all its gains from the government loan and investment.

And today? Well, USA Rare Earth stock is bouncing right back. Shares of the miner of rare-earth metals are up 5.8% through 10:30 a.m. ET after Cantor Fitzgerald analyst Derek Soderberg raised his price target to $35 after the sell-off.

Image source: Getty Images.

Why Cantor likes USA Rare Earth stock

Counting existing cash, new cash from the government's investment, the loan, and also a $1.5 billion private investment in public equity (PIPE) investment, Cantor Fitzgerald calculates USA Rare Earth now has $3.5 billion in cash "to support accelerated mining, expanded metal-making capacity, and magnet production ramp-up," as TheFly.com reports.

This reduces the risk of USA Rare Earth running out of cash before it becomes profitable. Now, says Soderberg, "attention shifts to execution of magnet production, which management believes could drive $1.2B of EBITDA by 2030 if milestones are met."

What this means for USA Rare Earth stock

To be clear, Soderberg thinks this is a good thing -- profits being still four years away. He may be right about that.

Most analysts agree $285 million in cash burn should get USA Rare Earth to profitability. They could be off by a factor of 10 and the company would still have enough cash to reach profitability by 2030. USA Rare Earth might not be a buy, but at least it won't go bust.

Rich Smith has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.