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Is Uranium Energy Corp stock a buy?

A commodity-focused company, such as Uranium Energy Corp (NYSEMKT:UEC) can be very volatile. That’s not surprising considering the product it sells, uranium, is somewhat volatile. Uranium Energy’s share price gain of approximately 90% over the past year is largely related to the rise in uranium prices. But there’s so much more you need to understand before you even consider buying this stock.

What goes up can also come down

The spot price of uranium has risen from about $49 about a year ago to $95 at the end of February 2024. That’s a very big increase, and it should come as no surprise that companies that extract the nuclear fuel have seen their shares rise over the same period. with the product they produce. Industry giant Cameco (NYSE: CCJ) is a good example, as the chart below shows.

CCJ chart

CCJ chart

Note, however, that the price of uranium miner Cameco is falling at the end of the chart. That’s because the uranium price fell from just over $100 at the end of January. That’s just how it goes with raw materials: they go up and down, and that will have a material impact on the price of the companies involved in the associated industry. A look at Uranium Energy Corp’s stock performance shows basically the same basic trends as Cameco’s chart.

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UEC chartUEC chart

UEC chart

But why not just put both companies on the same map? Cameco is a uranium miner. In any case, Uranium Energy Corp does not currently operate any uranium mines. There are a lot they would like to build, but the big short-term goal is to have just one mine back up and running by August 2024. Building mines is difficult, time-consuming and expensive. If you want to own a uranium miner, Cameco is probably a better choice than Uranium Energy Corp, as the latter is not yet a uranium miner.

There’s more to the story of Uranium Energy Corp

There’s a little wrinkle here. When uranium prices were at very low levels, Uranium Energy Corp made a number of bargain deals to buy the fuel. This has allowed the company to build up a stockpile of uranium, with more to come as uranium purchase contracts are still ongoing. It appears that investors value Uranium Energy Corp primarily based on the stock of uranium it holds.

UEC chartUEC chart

UEC chart

That’s not unreasonable, but it suggests that Uranium Energy Corp could be even more volatile than other options in the sector, such as Cameco, which has material assets. This is evident from the graph above, which compares the share prices of both companies over the past year. This is no small difference when it comes to investing. The share price of Uranium Energy Corp appears to be highly dependent on the price of the commodity in which it is involved. Unless you feel very strongly about uranium prices, you should probably proceed with caution here.

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And then you have to consider the execution risk associated with Uranium Energy Corp’s plans to reopen a mine in August. That doesn’t even take into account the more than six other projects that the company has on the drawing board, spread across North and South America. Each of these is subject to its own execution risks. This is not a simple mining story.

Only for the adventurous

Frankly, Uranium Mining Corp appears to have made a good decision when it struck deals to buy uranium at historically low prices, allowing it to build up a cheap reserve of nuclear fuel. (This is probably already fully reflected in the stock price.) The profits from the sale of that reserve, meanwhile, could help the company finance its long-term mine construction plans, which is a very interesting story.

But more conservative investors should go into this with their eyes open. Commodity prices will have a material impact on the share price as the main value here lies in the stock of uranium the company has created. And on top of that, building uranium mines comes with its own very material risks. This probably won’t be a good choice for most investors.

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Should you invest $1,000 in uranium energy now?

Consider the following before purchasing shares in Uranium Energy:

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Reuben Gregg Brewer has no position in any of the stocks mentioned. The Motley Fool recommends Cameco. The Motley Fool has a disclosure policy.

Is Uranium Energy Corp stock a buy? was originally published by The Motley Fool

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