Why USA Rare Earth Stock Soared Today

USA Rare Earth (NASDAQ: USAR) stock, one of a handful of start-up companies attempting to jump-start rare-earth oxide mining and rare-earth magnet manufacturing in the United States, soared 19% through 1:20 p.m. ET Thursday.

USA Rare Earth announced today that its Less Common Metals subsidiary (get it? "Less common" is another way of saying "rare") has signed an agreement to supply Solvay and Arnold Magnetic Technologies Corporation, a subsidiary of Compass Diversified (NYSE: CODI), with "high-quality rare-earth materials for Arnold's production of advanced permanent magnets."

Details, please

The agreement comes barely two months after USA Rare Earth agreed to buy Less Common Metals (LCM) for $100 million, marking a coup for USA Rare Earth as it puts its new subsidiary immediately to work. Curiously, USA Rare Earth didn't give much detail about the new deal -- how much rare-earth metal it will be supplying to Compass Diversified, how much it will earn for this supply, or... what exact role USA Rare Earth will play.

But we can speculate.

USA Rare Earth appears to be building a supply chain in which the parent company mines rare-earths and then sends them to LCM for processing, then ships them to Compass Diversified for manufacturing the end-product rare-earth magnets. USA Rare Earth also says it's still hoping to make its own magnets, though, and its factory for this purpose will be commissioned (and operational?) by Q1 2026.

Is USA Rare Earth stock a buy?

In the meantime, USA Rare Earth's deal with Compass promises to generate some revenue for the business even before the new magnet factory is operational.

For investors, that's pretty good news -- not least because it will give us a sales figure upon which to hang a price-to-sales ratio, and finally have a way to value USA Rare Earth stock!

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.