Easy come, easier go. Yesterday, shares of small modular (nuclear) reactor builder NuScale Power Corporation (SMR 2.89%) soared 29% on the back of a price-target hike from analysts at Canaccord Genuity.
Today, though, a different investment bank -- Wells Fargo -- pointed out how crazy that momentum rally looked. Now, NuScale stock is dropping 33% as of 11:45 a.m. ET.
What Wells Fargo said
NuScale stock had already tripled this year, as Wells Fargo points out today in a note on StreetInsider.com. The fact that this happened even though NuScale reported a big net loss last week -- more than $180 million lost for all of 2023 -- is bad enough, meaning investors may not have understood the import of the bad earnings news. But Wells Fargo's explanation of the situation is even worse than that.
"We think investor enthusiasm for SMR is misguided," warns Wells. NuScale's VOYGR nuclear power product has "no secure customers" and is "not cost competitive" says the analyst. To emphasize the point, Wells downgraded NuScale stock to underweight (i.e., sell) and assigned the stock the very same $4.50 price target that Cannacord had raised it from yesterday. Wells Fargo basically is saying that everyone who bought NuScale on yesterday's Canaccord report was wrong.
No wonder investors are spooked!
Is NuScale stock a sell?
As I pointed out yesterday, NuScale may have some cool nuclear energy ideas and may even be the leader in "innovative advanced small modular reactor ... nuclear technology." But as a business, it's kind of a mess.
Unprofitable today and not expected to become profitable before 2027 at the earliest (if it lives that long), NuScale has only $120 million in cash on its balance sheet but is burning cash at the rate of $185 million per year. This means the company probably only has enough money to remain in business for another nine months before it must take on more debt or sell more stock to keep going.
Until the stock price falls enough to reflect these risks, NuScale is a sell.
