Nano Nuclear Energy (NNE 2.67%) shares went on a tear last fall, when small modular reactor (SMR) nuclear stocks were all the rage. More recently, however, price action has been far less exciting for this speculative growth stock.
During this time, Nano has traded sideways, even as the early-stage company has continued to report new developments. Yet while it is difficult to forecast when this stock could potentially become hot again, there is admittedly a factor at play that could serve as a double-edged sword for shares.
That would be Nano Nuclear Energy's high level of short interest. This factor could help the stock surge back above $50 per share on positive news, but could also send it back to new lows on bad news.
NASDAQ: NNE
Key Data Points
With this in mind, now may not be the time to rush into a position.
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Nano Nuclear Energy and its high short interest
Short interest represents the percentage of shares sold short relative to a stock's outstanding share count, or float. Historically, short interest has served as a gauge of how much the market is betting against a particular stock.
More recently, however, with the emergence of the meme stock phenomenon, investors have also looked to high short interest as a bullish signal. In situations where a stock becomes heavily shorted, there is a chance of a short squeeze. That's when a stock quickly rises, typically on positive news, leading to short-sellers scrambling to cover positions.
In theory, a scenario like that could play out here with Nano. Short interest in Nano currently stands at around 25% of outstanding shares and 33% of outstanding float. It may only take a small amount of positive news, such as a well-received quarterly earnings report. Still, taking a closer look, it's tough to argue that a needle-moving development is just around the corner.
The big caveat, and why there's a better SMR wager out there
Nano Nuclear Energy may have potential to squeeze, but don't assume another meme-fueled short squeeze is just around the corner. Digging further into the situation, there's much more out there suggesting the short side can "win" on this trade, at least in the short term.
Why? Even as Nano continues forming new partnerships to develop its microreactor technology, such as with the University of Illinois Urbana-Champaign and with South Korea's DS Dansuk, the company is expected to only start generating significant revenue several years from now.
Barring the announcement of a major commercial partnership, I don't see there being an upcoming event that kicks investor enthusiasm back into high gear. Over the longer term, as the monetization timeline remains long, Nano is at risk of burning through its $578 million cash position. This may lead to Nano needing to execute a dilutive capital raise, like it did last October.
Share dilution, or the prospect of it, is another factor that could put pressure on shares. Given these variables, if you're bullish on the SMR trend, you may want to consider other nuclear energy stocks. Nano's larger competitor, NuScale Power (SMR 3.23%) is a key example. Better capitalized and making greater monetization progress to boot, it may prove a more profitable way to play this energy technology trend.
