Uranium Energy (UEC 2.52%) stock has proven a profitable investment in recent years. In 2020, shares traded hands for just $0.38. Today, their price is around $7.
Huge money has already been made with Uranium Energy stock, but the company argues that its future remains incredibly bright. Is it time to buy, sell, or hold this hot stock?
NYSEMKT: UEC
Key Data Points
A rocket that was waiting to launch
As its name implies, Uranium Energy is all in on uranium and nuclear power. In 2006, the company went public, raising around $10 million. Its assets included several early-stage mining assets in places like Nevada, Arizona, New Mexico, and Paraguay. The company also acquired a 19.5% stake in Uranium Royalty, a company that makes investments in uranium interests such that its value will rise and fall along with the price of the metal itself.
Uranium Energy's pitch to investors back then was simple: Uranium prices are about to jump in a big way. The company had accumulated a large inventory of uranium, and its mining assets would grow in viability and value as well if uranium prices rose.
That prediction turned out to be true. Since the company went public, uranium prices have nearly doubled, from $40 per pound to above $70 per pound. That might not seem like explosive price action until you understand the economics of a uranium mine. The average breakeven price for uranium mines in the Western world is around $90 per pound. But if a particular project broke even at $70 per pound, then the rise in prices has transformed it from a huge money loser to a potentially profitable operation. The value of such an asset, then, should increase heavily. That's exactly what has happened to Uranium Energy's asset base, causing its share price to skyrocket.
Will Uranium Energy stock keep rising?
Today, Uranium Energy's management team is repeating the same mantra: Uranium prices will continue to rise. Where is all this bullishness coming from? It's simple supply and demand. According to the World Nuclear Association, there isn't enough uranium supply ready to come to market to satisfy the mounting demand for nuclear power, a trend driven by the world's shift toward cleaner energy sources. By 2040, the organization believes, supply might only satisfy 50% of potential demand, even including mine restarts and the full development of today's planned mines. That should provide long-term support to uranium prices.
Image Source: World Nuclear Association Fuel Report.
There's no denying that there's a long-term bullish case to be made for uranium prices. But as Uranium Energy is proving, companies will be investing heavily to bring even more new projects online to take advantage. Uranium Energy has acquired heavily in recent years, and is currently pursuing several mega-projects in Canada, the U.S., and South America that will eventually bring millions of pounds of annual production to the market. Whether there will be a meaningful supply gap in the years to come, let alone the decades to come, remains to be seen.
There's also the reality that Uranium Energy isn't the company today that it was before its stock price skyrocketed. It's still focused on uranium, of course, but more of its future will be dictated by its success as a mining company, rather than simply a commodity owner benefiting from rising prices. Some of its projects are already producing, but many are still in exploratory stages, waiting to be built.
Even if the company executes on its growth visions successfully, the one number that will ultimately move the company's stock price over the long term more than anything else is the future price of uranium. To buy Uranium Energy stock today, you must not only believe that demand for nuclear power will continue to grow, but that uranium supply will remain constrained.
For much of the last decade or two, the opposite has been true. There was plenty of existing supply to meet plateauing demand. The world's shift toward energy sources that emit less (or no) carbon dioxide may mean this price run is different than the previous ones, but price runs like this have happened many times before. From 2004 to 2008, for example, uranium prices zoomed from $20 per pound to $138 per pound, largely driven by rising expectations for Chinese demand. From 2008 to 2016, however, uranium prices slumped back to $20 per pound as those expectations for demand growth withered.
Will this time be different? Maybe, but mining stocks in general rarely dictate their own futures. If you're bullish on long-term uranium prices, Uranium Energy stock is still a buy at current levels. But that's a difficult prediction to make, and most investors will be better off investing in businesses that have more control over what ultimately becomes of them.
