Over the past month or so, NuScale Power (SMR -2.37%) has seen its stock price rise by a massive 80%. That's a very large price advance in a very short period of time. It speaks to two important factors that investors need to consider before buying NuScale Power right now.
Here's what you need to understand before jumping aboard this stock rally.
What does NuScale Power do?
NuScale Power is looking to build and sell small-scale modular nuclear reactors. Although it doesn't actually do either of those two things today, it has made material progress toward its long-term goals. For example, it has a regulatory-approved reactor design. And it is in the process of getting a second design, which produces more power, approved later in the year.
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NuScale has also begun the process of building its modular nuclear reactors. That largely means ordering parts from outside vendors that take a long time to produce. So, if everything goes well, it should be capable of hitting the ground running.
The last piece of the puzzle is the first potential sale. And even there, NuScale Power has made huge progress. It has a tentative deal with RoPower, a Romanian utility. Right now, NuScale Power is working on feasibility studies, with the hope that a final capital investment decision will be made by the end of 2025. The first small-scale nuclear reactors could be up and running by as early as 2030.
Assuming the RoPower deal works out as hoped, NuScale would likely be one of the leading providers of small-scale modular nuclear reactors. And having one deal in the bag will probably make future deals easier to sign.
A lot of good news is priced into the stock
From a long-term perspective, there is a lot of opportunity for the business to grow. But recent moves from the U.S. government to support nuclear power have pushed the stock materially higher over the last month. That prices in a lot of good news in a shockingly short period of time.
In fact, the stock is trading near its all-time highs. If you buy the stock today, you have to believe that there is huge growth ahead to justify your purchase. The problem is that, even if there is huge growth ahead, it won't really benefit the company for at least a few more years.
So NuScale Power is really a story stock at this point. And that story is getting a boost from emotional investors excited by the moves of the U.S. government. It is hard to suggest that this will be a sustainable rally, not because NuScale Power's long-term prospects are bad, but because the rally is emotionally driven. Fickle Wall Street could decide it's time to take profits, or a piece of bad news could come out that changes the positive mood into a negative one.
Be patient with NuScale Power
Risk-averse investors probably won't want to buy NuScale Power until it actually has both revenue and, more importantly, sustainable profits on its income statement. But even more aggressive investors might also want to step back for a moment here.
Over the past 12 months, this stock has twice lost more than half of its value before recovering. That speaks to the mercurial nature of investors when it comes to story stocks. Given that the first NuScale Power reactors aren't expected to be turned on until 2030 or so, you have time to wait for the mood to shift in a negative direction again.
