A commodity-focused business like Uranium Energy Corp (UEC 2.76%) can be very volatile. That's not surprising when you consider that the product it sells, uranium, is a bit volatile. Uranium Energy's 90% or so stock price gain over the past year is largely related to the rise in uranium prices. But there's so much 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. That's a very large increase, and it shouldn't be surprising that companies that mine for the nuclear fuel have seen their stocks rise along with the commodity they produce. Industry giant Cameco (CCJ 1.65%) is a great example, as the chart below shows.
Notice, however, that the price of uranium miner Cameco trails off at the end of the graph. That's because uranium prices have fallen from just over $100 at the end of January. That's just how it goes with commodities -- they go up and they go 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 basically shows the same basic trends as Cameco's chart.
But why not just put both of these companies on the same chart? Cameco is a uranium miner. At this point anyway, Uranium Energy Corp doesn't operate any uranium mines. It has a bunch that it would like to build, but its big near-term goal is to get just one mine up and running again by August of 2024. Building mines is hard, time consuming, and expensive. If you want to own a uranium miner, Cameco is probably a better bet than Uranium Energy Corp since the latter really isn't a uranium miner just yet.
There's more to the Uranium Energy Corp story
There's a small wrinkle here. When uranium prices were at very low levels, Uranium Energy Corp inked some advantageous deals to buy the fuel. That has allowed the company to create a stockpile of uranium, with more to come since the contracts to buy uranium are still running. It appears that investors are mostly valuing Uranium Energy Corp based on the stockpile of uranium it owns.
That's not unreasonable, but it suggests that Uranium Energy Corp could be even more volatile than other options in the industry, like Cameco, which has material operating assets. That's borne out in the chart above comparing the stock moves of both companies over the past year. This is not a small difference when it comes to investing. Uranium Energy Corp's stock price appears highly leveraged to the price of the commodity it is involved in. Unless you have a very strong feeling about uranium prices, you should probably tread carefully here.
NYSEMKT: UEC
Key Data Points
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 consider the half dozen-plus other projects spread across North and South America that the company has on the drawing board. Each and every one of those is subject to its own execution risks. This is not a simple mining story.
Only for the adventurous
To be fair, Uranium Mining Corp appears to have made a great decision when it inked deals to buy uranium at historically low prices, allowing it to build up a low-cost reserve of the nuclear fuel. (This is probably fully reflected in the stock price already.) Profits from the sale of that reserve, meanwhile, can help the company fund its long-term mine-building plans, which is a very interesting story.
But more conservative investors need to go in with their eyes open here. Commodity prices are going to have a material impact on the stock price since the main value here is in the store 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.
