Should Investors Consider Buying Uranium Energy Corp Stock?

Should Investors Consider Buying Uranium Energy Corp Stock?

A company focused on raw materials like Uranium Energy Corp. (NYSEMKT:UEC) can be very volatile. This is not surprising considering that the product it sells, uranium, is a bit volatile. The roughly 90% rise in Uranium Energy’s stock price over the past year is largely linked to rising uranium prices. But there’s a lot more to understand here before you even consider buying this stock.

What goes up can also come down

The spot price of uranium has risen from around $49 about a year ago to $95 at the end of February 2024. This is a very large increase, and it should come as no surprise that companies which extract nuclear fuel have seen their stocks increase at the same time. with the merchandise they produce. Industry giant Caméco (NYSE:CCJ) is a great example, as shown in the chart below.

Should Investors Consider Buying Uranium Energy Corp Stock?

CCJ table

Note, however, that the price of uranium mining company Cameco softens towards the end of the chart. This is because uranium prices fell by just over $100 in late January. This is exactly how it happens with commodities: they go up and down, and this will have a significant impact on the price of companies involved in the associated industry. A look at Uranium Energy Corp’s stock performance shows essentially the same fundamental trends as Cameco’s chart.

UEC ChartUEC Chart

UEC Chart

But why not just put these two companies on the same chart? Cameco is a uranium mining company. In any case, at this stage, Uranium Energy Corp does not operate any uranium mines. It would like to build several, but its main short-term goal is to bring a single mine back into operation 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 since the latter is not really a uranium miner yet.

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 favorable 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 in progress. It appears that investors primarily value Uranium Energy Corp based on the uranium inventories it owns.

UEC ChartUEC Chart

UEC Chart

This isn’t unreasonable, but it suggests that Uranium Energy Corp could be even more volatile than other options in the sector, like Cameco, which has significant operating assets. This is confirmed by the chart above comparing the two companies’ stock movements over the past year. This is no small difference when it comes to investing. Uranium Energy Corp’s stock price appears strongly linked to the price of the commodity it is involved in. Unless you have a very good idea of ​​the price of uranium, you should probably proceed with caution.

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

Only for adventurers

To be fair, Uranium Mining Corp appears to have made an excellent decision in signing deals to buy uranium at historically low prices, allowing it to build up a stockpile of low-cost nuclear fuel. (This is probably already fully reflected in the stock price.) Meanwhile, profits from the sale of this reserve can help the company finance its long-term mine construction plans, which is a story very interesting.

But the most conservative investors should go in with their eyes open. Commodity prices are going to have a big impact on the stock price since the main value here is in the stock of uranium that the company has created. And on top of that, building uranium mines carries its own very significant risks. This probably won’t be a good choice for most investors.

Should you invest $1,000 in Uranium Energy right now?

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Ruben 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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