Uranium Energy (NYSEMKT: UEC) stock has been a rocket in recent years. In 2020, shares traded for less than $1. Today, they're valued at nearly $7.
Is it too late to buy this soaring growth stock?
Everyone was waiting for this moment
Most people have heard of uranium. Most people also are aware that uranium is what powers large nuclear reactors.
What most people don't realize, however, is that the uranium market has one of the wildest histories of any commodity market.
In the 1970s, uranium prices surged 17 times higher due to rising demand. The world's civilian nuclear energy industry took off, and many believed uranium would soon surpass fossil fuels as a power source for electricity generation. But in the wake of the accident at Three Mile Island, the public appetite for nuclear power waned, and by the end of the decade, with supply rising faster than demand, uranium prices had crashed. They continued to trend downward both before and after Chernobyl.
Then, in the early 2000s, uranium prices surged by nearly 1,500% from their low point due to, among other things, rising expected demand from China and a global supply shortage. By 2016, however, reaction to 2011's Fukushima nuclear disaster and a softening in demand had caused prices to plummet again.
For many years, some analysts have been predicting another sustained and significant uranium price boom. Such predictions proved ahead of their time -- until now. Spot prices for uranium have zoomed by more than 200% since 2016. The stock price of Uranium Energy has followed suit.
As a miner of uranium, Uranium Energy benefits directly as the value of its output -- and the inventory it holds -- rises. Meanwhile, uranium prices remain 50% below their all-time highs. Could Uranium Energy's stock price double in value from here?
Uranium Energy is perfectly positioned to benefit from the latest surge in uranium prices.
The company already has 866,000 pounds of uranium inventory on hand, which it purchased for an average cost of around $49 per pound. It also has contracts to purchase another 1.3 million pounds at an average price of $46 per pound.
With current uranium prices of around $80 per pound, there is significant value and upside to the company's inventory alone.
Meanwhile, the company also owns a variety of mining assets throughout North and South America, with more than 200 million pounds of measured and inferred uranium. Not all of that uranium will be economically viable to extract, but one thing is clear: Uranium Energy is sitting on a metaphorical goldmine, and prices seem to be taking off.
With more than $200 million in liquid assets and no debt, the company is in a promising position to get many of its best assets online and producing over the next decade.
The case for or against investing in Uranium Energy today rests on one question: Will uranium prices continue to rise?
Source: Uranium Energy investor presentation.
To answer it, let us first begin with why uranium prices have surged so much since late 2016.
As with any commodity, everything comes down to supply and demand. Nuclear phaseouts and reductions following the Fukushima disaster have ceased, and many existing reactors have seen their licenses extended and usages rise. Meanwhile, investments in new types of nuclear reactors have begun to climb, spurred by new clean energy goals. The U.S. government, for example, has set a goal of reaching 100% carbon pollution-free electricity production by 2035.
The supply side, meanwhile, is constrained. After years of underinvestment in mining projects, 2024's global demand for uranium is expected to exceed production by 36 million pounds. Over the coming decades, the cumulative gap could widen to more than 1 billion pounds.
Of course, industry supply will come rushing to fill the void. Uranium Energy, for instance, is restarting extraction at many mines that were uneconomical at lower prices. All this will take time, however, but the underlying growth drivers for the current spike look very real and possibly permanent. Global investment in clean energy continues to soar, with few analysts expecting a reversion to the mean.
Is Uranium Energy stock still a buy after zooming from $1 to $7? It appears so, but only if you believe in uranium becoming a growing and permanent part of the world's energy system. Predicting short-term spot prices of commodities is a difficult game, even though Uranium Energy's stock price will gyrate based on the metal's movements.
Uranium Energy is positioned well for a carbon-neutral world, but make no mistake: This story was decades in the making, and it will take decades to fully play out. Traders looking to ride the short-term surge should steer clear, but patient investors should feel comfortable making a long-term bet.
Should you invest $1,000 in Uranium Energy right now?
Before you buy stock in Uranium Energy, consider this:
The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Uranium Energy wasn't one of them. The 10 stocks that made the cut could produce monster returns in the coming years.
Stock Advisor provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month. The Stock Advisor service has more than tripled the return of S&P 500 since 2002*.
Ryan Vanzo has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
