Uranium Energy Corp. (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.
In the 1970s, uranium prices surged 17 times in price due to a surge in demand. The world's civilian nuclear industry took off, and many believed uranium would soon replace fossil fuels en masse. Of course, this did not happen, and by the end of the decade, uranium prices had crashed due to a series of nuclear disasters and rising supply.
Then, in the early 2000s, uranium prices surged nearly 1,500% due to, among other things, rising expected demand from China and a global supply shortage. By 2016, however, another string of nuclear disasters plus a softening in global demand caused prices to plummet again.
In recent years, many analysts have been calling for another uranium price boom. As a miner of uranium, Uranium Energy Corp. benefits directly in these environments. The value of its uranium inventory rises in tandem with uranium prices, as does the profit it earns from selling its mining production.
For years, predictions of another uranium price boom 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.
Importantly, uranium prices remain 50% below their all-time highs. Could Uranium Energy's stock price double in value from here?
You must believe in these growth drivers
At its core, Uranium Energy is perfectly primed to benefit from the latest surge in uranium prices.
On a physical basis, 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 1,300,000 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, but one thing is clear: Uranium Energy is sitting on a metaphorical goldmine right as 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.
To invest in Uranium Energy stock today, you must ask yourself one question: Will uranium prices continue to rise?
Source: Uranium Energy Corp Investor Presentation, Page 7
Let us first begin with why uranium prices have surged so much since.
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., for example, has a goal of reaching 100% carbon-free electricity production by 2035.
The supply side, meanwhile, is constrained. Following years of underinvestment, global demand for uranium is expected to exceed production by 36 million pounds. Over the coming decades, that gap could widen to the billions of pounds.
Of course, industry supply will come rushing to fill the void. Uranium Energy, for instance, is restarting many mines that were previously uneconomical. All this will take time, however, and 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? Yes, 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 their 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. Steer clear if you're looking to ride the short-term surge, but patient investors should feel comfortable making a long-term bet.
