Concerns about tight supply due to geopolitical risks and other factors accompanied by high demand for nuclear power worldwide have uranium prices on an upswing. Major economies, including China, Japan, India, Europe, and the U.S., are increasingly embracing nuclear power and expanding their nuclear power capabilities, boosting uranium demand.

Given an uptick in uranium prices, uranium stocks Cameco Corporation (CCJ), NexGen Energy Ltd. (NXE), and Ur-Energy Inc. (URG) have soared significantly in price lately. However, these stocks are best avoided now due to their weak fundamentals and dim outlook.

Uranium prices extended their rally to $72.75 in October, the highest since touching $73 before the Fukushima disaster in 2011, as solid demand from utilities coincided with low inventories and tight supplies. Volatile fossil fuel prices due to limited oil supply and decarbonization goals from the world’s major economies continued to drive governments to invest in nuclear power production.

China is projected to build another 32 nuclear reactors by the decade’s end, and Japan plans to restart multiple plants and build new facilities. Also, discussion to build new plants or extend the lifespan of existing ones has ramped up in advanced economies, with the United Kingdom and Sweden among those working toward adding more capacity.

Further, in April this year, Finland started its first new nuclear reactor in more than four decades, the largest in Europe, and the U.S. brought a newly built reactor online for the first time since 2016 this year.

Moreover, according to a report by the World Nuclear Association, nuclear capacity is expected to grow by approximately 80%, and demand for uranium, the element from which fuel for nuclear reactors is fabricated, will nearly double by 2040. Currently, nuclear energy provides roughly 10% of the global electricity from about 440 power reactors.

These developments coincided with mounting worries about supply following shipments of nuclear fuel from Russia, which were again halted due to insurance concerns. In addition, political turmoil in Niger led to French nuclear group Orano suspending operations in the country. Also, escalating troubles in mines drove Canada’s Cameco to revise production downwards this year.

Uranium mining, enrichment, and nuclear component players will likely benefit from these favorable price trends.

According to a report by Research And Markets, the global uranium ore market is expected to reach $1 billion by 2027, growing at a CAGR of 5%. The solid growth in the uranium ore market is attributable to rising nuclear fuel spending as governments globally are increasing spending on the defense industry.

Also, the growing adoption of digital technology in the mining industry significantly improves production efficiency and lowers turnaround time and costs, boosting the market’s prospects.

Investors' interest in uranium stocks is evident from the Global X Uranium ETF’s (URA) 37.2% returns over the past six months and 30.7% year-to-date.

Although surging prices have helped uranium stocks CCJ, NXE, and URG gain solid momentum lately, given their bleak fundamentals and grim prospects, it could be wise to avoid these stocks now.

Let’s discuss the fundamentals of the featured stocks:

Cameco Corporation (CCJ)

Headquartered in Saskatoon, Canada, CCJ offers uranium for the generation of electricity. It operates through Uranium and Fuel Services segments. Its Uranium segment engages in the exploration, mining, and sale of uranium concentrate. The Fuel Services segment is involved in refining, converting, and fabricating uranium concentrate and selling conversion services.

On September 3, CCJ provided a market update regarding challenges at the Cigar Lake mine and Key Lake mill expected to impact its fiscal 2023 production forecast. At the Cigar Lake mine, the company now anticipates producing up to 16.3 million pounds of uranium concentrate this year, down from the previous forecast of 18 million pounds.

Also, production from the McArthur River/Key Lake operations for this year is expected to be 14 million pounds of uranium concentrate, a reduction from the prior forecast of 15 million pounds.

CCJ’s trailing-12-month gross profit margin and EBITDA margin of 37.47% and 22.09% compared unfavorably to the respective industry averages of 47.53% and 38.69%. Likewise, the stock’s trailing-12-month net income margin of 4.69% is 66.8% lower than the industry average of 14.13%.

In terms of forward non-GAAP P/E, CCJ is currently trading at 72.41x, 635% higher than the industry average of 9.85x. The stock’s forward EV/EBITDA of 37.67x is significantly higher than the industry average of 5.61x. Moreover, its forward Price/Sales multiple of 8.93 compares to the industry average of 1.48.

For the second quarter that ended June 30, 2023, CCJ’s revenue decreased 13.6% year-over-year to $482 million. The company’s adjusted net losses came in at $3 million and $0.01 per common share, compared to adjusted net earnings of $72 million and $0.18 in the same quarter of 2022, respectively.

Furthermore, the company’s cash inflows from operations were $87 million, a decline of 14.7% year-over-year.

Over the past three years, CCJ’s revenue increased at a CAGR of 0.5%, while its net income and EPS grew at CAGRs of 31.8% and 29%, respectively. However, the company’s EBITDA declined at a CAGR of 2.5% over the same period. Also, its levered free cash flow fell at a CAGR of 56.3% over the same timeframe.

Shares of CCJ have gained 49.2% over the past six months and 64.3% year-to-date to close the last trading session at $37.68. The stock is currently trading above its 50-day and 200-day moving averages of $36.82 and $29.88, respectively.

CCJ’s POWR Ratings reflect its bleak prospects. The stock has an overall D rating, equating to a Sell in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.

The stock has a D grade for Value, Sentiment, and Stability. It is ranked #26 out of 32 stocks in the Industrial - Metals industry.

Click here for the additional POWR Ratings for CCJ (Momentum, Growth, and Quality).

NexGen Energy Ltd. (NXE)

Based in Vancouver, Canada, NXE is an exploration and development stage company that engages in the acquisition, evaluation, and development of uranium properties. The company holds 100% interest in the Rook I project comprising 32 contiguous mineral claims totaling an area of 35,065 hectares located in the southwestern Athabasca Basin of Saskatchewan.

NXE’s trailing-12-month ROCE, ROTC, and ROTA of negative 16.06%, negative 7.58%, and negative 12.10% are lower than the industry averages of 21.57%, 10.60%, and 8.06, respectively.

The stock’s forward EV/Sales of 5,487.18x is significantly higher than the industry average of 2.12x. Likewise, its forward Price/Sales multiple of 5,469.77 compares to the industry average of 1.48.

For the second quarter that ended June 30, 2023, the pre-revenue company’s expenses increased 32.8% year-over-year to CAD15.38 million ($11.25 million). NXE’s loss before taxes came in at CAD17.98 million ($13.16 million), compared to an income before taxes of CAD17.59 million ($12.87 million) in the previous year’s quarter.

Additionally, NXE reported a net loss of CAD17.50 million ($12.80 million) versus net income of CAD17.59 million ($12.87 million) in the same period of 2022. Also, loss per share attributable to NXE shareholders was CAD0.04, compared to earnings per share of CAD0.03 in the same period last year.

Shares of NXE have gained 59.5% over the past six months and 44.2% over the past year to close the last trading session at $5.71. The stock is currently trading above its 50-day and 200-day moving averages of $5.41 and $4.53, respectively.

NXE’s deteriorating fundamentals are reflected in its POWR Ratings. The stock has an overall D rating, equating to a Sell in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.

The stock has an F grade for Value and Quality and a D for Sentiment. It is ranked #32 out of 39 stocks in the Miners - Diversified industry.

In addition to the POWR Ratings I’ve just highlighted, you can see NXE’s ratings for Growth, Stability, and Momentum here.

Ur-Energy Inc. (URG)

URG acquires, explores, develops, and operates uranium mineral properties. The company holds interest in 12 projects across the U.S. Its flagship property is the Lost Creek project, comprising nearly 1,800 unpatented mining claims and three Wyoming mineral leases covering an area of approximately 35,400 acres in the Great Divide Basin, Wyoming.

URG’s trailing-12-month gross profit margin of negative 206.92% compared to the industry average of 47.53%. Likewise, the stock’s trailing-12-month EBITDA and net income margins of negative 280.03% and negative 275.30% compared unfavorably to the respective industry averages of 38.69% and 14.13%.

In terms of forward EV/EBIT, URG is trading at 72.20x, 702.1% higher than the industry average of 9x. Also, the stock’s forward Price/Sales and Price/Cash Flow multiples of 14.98 and 152 are significantly higher than the industry averages of 1.48 and 4.86, respectively.

Over the past three years, URG’s revenue declined at a CAGR of 35.6%. But the company’s total assets grew at a 17.4% CAGR.

During the second quarter that ended June 30, 2023, URG’s revenue increased 105.3% year-over-year to $39 thousand. However, the company’s gross loss widened 77.2% from the year-ago value to $2.91 million. Also, its loss of operations worsened 75% year-over-year to $8.93 million.

In addition, the company’s net loss came in at $7.28 million, compared to $353 thousand in the prior year’s quarter, while it reported a loss per share of $0.03 for the quarter.

Analysts expect URG’s revenue to increase considerably year-over-year to $26.53 million for the fiscal year (ending December 2023). However, the company is expected to report a loss per share of $0.01 for the current year.

URG’s stock has surged 5.6% over the past month and 65.7% over the past six months to close the last trading session at $1.52. The stock is currently trading above its 50-day and 200-day moving averages of $1.32 and $1.12, respectively.

URG’s POWR Ratings reflect this weak outlook. The stock has an overall D rating, translating to a Sell in our proprietary rating system.

URG has an F grade for Quality and Value. It also has a D grade for Stability. It is ranked #31 among 39 stocks in the Miners - Diversified industry.

To access additional POWR Ratings of URG for Momentum, Sentiment, and Growth, click here.

What To Do Next?

43 year investment veteran, Steve Reitmeister, has just released his 2024 market outlook along with trading plan and top 11 picks for the year ahead.

2024 Stock Market Outlook >

CCJ shares were trading at $36.92 per share on Monday morning, down $0.76 (-2.02%). Year-to-date, CCJ has gained 62.86%, versus a 13.25% rise in the benchmark S&P 500 index during the same period.

Mangeet’s keen interest in the stock market led her to become an investment researcher and financial journalist. Using her fundamental approach to analyzing stocks, Mangeet’s looks to help retail investors understand the underlying factors before making investment decisions.

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