NuScale Power (SMR 4.70%) is a nuclear power start-up focused on small modular reactors (SMRs). The company is a speculative bet on small-scale nuclear power. The stock had been rising, but NuScale shares dropped 37% from July 25 to Aug. 19. What's going on?
The double whammy
It appears that NuScale is the victim of a pair of negative catalysts that hit in rapid succession: news of a big insider stock sale and a tepid quarterly report.
On July 31, construction and engineering company Fluor Enterprises (NYSE: FLR) -- NuScale's largest shareholder -- entered into an agreement to exchange 15 million Class B shares of NuScale stock for 15 million Class A shares. The transaction took place on Aug. 12. That agreement allows Fluor to sell the shares starting on Sept. 11, subject to some daily limitations.
Existing NuScale shareholders were justifiably concerned that such a massive stock sale would dilute the value of their shares, so some probably decided to sell before the lock-up period expires and a flood of new shares on the market brings the share price down.
Then, on Aug. 7, NuScale reported its Q2 results, which featured lower-than-expected revenue of $8.1 million and a net loss of $0.13 per share. The company's stock dropped another 12% in response, and has only slid further since. Even so, shares are still up 82% year to date as of market close Aug. 19, crushing the S&P 500's approximately 10% gain.
Image source: Getty Images.
A risky bet
NuScale's SMRs are still in the development phase. In its Q2 earnings presentation, management reiterated that it's hoping to get "a firm order by the end of 2025" for a reactor, which it would still then need to build. In the meantime, it remains a risky, speculative investment.
Fluor's impending sale of NuScale stock could cause the price to drop further, so interested investors will probably want to wait before buying in.
