The price of uranium has risen strongly over the past year or so, with spot prices hitting $100 early in 2024. That's also drastically higher than the roughly $18 at which the nuclear fuel traded at its nadir in 2016. So, in some ways, there's a reason to be excited about the uranium space. Note that nuclear power is, in fact, a carbon-free energy source. But is that enough of a reason to buy Uranium Energy Corp. (UEC 1.25%)? Here are some things to consider.
Buy Uranium Energy Corp.
Uranium is on the rise. Higher commodity prices will lead to higher revenue from selling uranium. Investors have reacted as you might expect, bidding up the prices of uranium-related companies like Uranium Energy. The first reason you might want to buy the company is if you expect uranium prices to continue heading higher.
However, you can't expect prices to rise forever. In fact, there has been a pullback of late, which has resulted in a decline in Uranium Energy's stock price. That doesn't mean that uranium can't go any higher, but you have to understand that commodity prices rise and fall.
NYSEMKT: UEC
Key Data Points
In addition to the basic price of uranium, Uranium Energy has another unique attribute. It owns a large stockpile of the nuclear fuel that it bought at lower prices. In hindsight, building that stockpile has turned out to be a very good arbitrage play. Selling uranium from the stockpile will bring in cash that the company can use for other purposes.
One of the biggest uses of that cash is likely to be building an operating uranium mine. At this point, the company hopes to reopen one mine in August 2024. It has about half a dozen or so other mines on the drawing board as well. If Uranium Energy can get these mines up and running, it will be a major player in the uranium mining sector. Buying the stock now will get you in before the company hits its stride, assuming it can build the mines it has planned.
But a lot depends on the price of uranium, which has gone through a series of major peaks and valleys. So you really need to believe that the price of the nuclear fuel will remain constructive.
Hold Uranium Energy Corp.
If you have owned Uranium Energy for a while, you might be sitting on stock gains. That changes the equation a little bit, though the basic story remains the same as the buy thesis. To hold, you have to believe that the strength in the uranium market will remain robust. That will allow Uranium Energy to build out its mining portfolio and hopefully realize management's long-term vision in the uranium sector.
That said, the long-term stock chart above shows that Uranium Energy's share price is quite volatile. It has traversed a series of extreme highs and lows that should cause investors pause. There is material risk that a downturn in the price of uranium could lead to a massive correction in Uranium Energy's stock price. Go in with your eyes open -- this is a volatile stock.
Sell Uranium Energy Corp.
There are a few reasons to sell Uranium Energy's stock. First, if you recognize the volatile nature of uranium and this particular company's share price, you might want to lock in your gains and walk away with a solid return. There's nothing wrong with that, since it would likely reduce overall risk in your portfolio.
Another reason to sell Uranium Energy, or to not buy it in the first place, is that the stockpile of uranium it owns is the company's only material asset. That leverages it to uranium prices. So its stock is likely to be more volatile than those
of mine-operating competitors, like industry giant Cameco (CCJ +0.32%). That isn't meant to suggest that Cameco's stock isn't volatile, just that Uranium Energy has proven to be more volatile.
The really big reason to sell, however, is the execution risk involved in the company's plan to reopen a uranium mine and then to build additional mines. Building a mine is a complex, expensive, and long project. And with no actual mine operating at this point, Uranium Energy has a lot to prove to investors. Owning it means you believe that uranium prices will remain lofty and that the company can execute on its mine construction plans. That's something that more aggressive investors might be OK with, but most others should probably err on the side of caution.
Only for the most aggressive investor
Uranium Energy has an interesting story to tell, but it is also a story that includes a material level of risk. This is not the type of company that conservative investors would likely be comfortable owning. If uranium prices remain strong and the company manages to build out some mines, it could be a big winner. But there are a lot of things that could go wrong along the way that could turn it into a big loser, including falling commodity prices and weak project execution. Only the most aggressive investors should be considering this uranium stock.
