Uranium Shortage Makes This Stock an Interesting Investment

Commodity investors had a rough 2023, unless you owned uranium.

Often overlooked, this radioactive material gained 69% for the year, making it the best-performing commodity.

Financial pros were big on Cameco Corp (CCJ), making the top searched uranium stock in 2023 and over the last month.

Analysts expect rising energy demand coupled with a shortage in uranium production to keep the price of uranium high for years.

But does that make Cameco a good investment?

Our deep dive below explores the company and its valuation.

Cameco’s Business

As the world’s largest publicly traded uranium company, Cameco produces over 15 million pounds of uranium annually.

The company runs two core operations:

• Uranium (85% of total revenues) – This segment involves the exploration for, mining, milling, purchase, and sale of uranium concentrate, serving as the company’s primary revenue source.
• Fuel Services (15% of total revenues) – Engages in refining, conversion, and fabrication of uranium concentrate. It also includes production of fuel bundles and zirconium-based reactor components for CANDU reactors.

Uranium is a divisive topic.

While it provides clean energy, about 3% of the nuclear waste needs to be stored, which is about 10,000. Current methods put it in concrete bunkers deep in the Earth.

Financials

Source: Stock Analysis

Margins improved dramatically as uranium prices skyrocketed, with a trailing 12-month gross margin exceeding 40% and net income margin hitting almost 12% white free-cash-flow margin came in just above 11%.

Operating cash flow nearly doubled from $225 million to $415 million last year.

However, management chose to issue shares, taking the total outstanding share count from 398.1 million in 2021 to 433.9 million in 2023.

While they paid out a tiny dividend, the rest was kept as cash on the balance sheet.

Valuation

Source: Seeking Alpha

Cameco is not a cheap stock.

It trades at almost 50x operating cash flow and 78x forward earnings.

Energy Fuels (UUUU) is the cheapest of the group, but is far smaller with less than $38 million in annual revenues.

Centrus Energy (LEU) is much cheaper than Cameco in nearly every respect. But, it’s not a uranium miner, instead focusing on other parts of the supply chain.

Growth

Source: Seeking Alpha

Every uranium miner with the exception of Denison Mines Corp (DNN) saw explosive growth last year.

Yet, only Cameco has put together growing free cash flow for the last three years.

Forward estimates for the company project double-digit revenue growt in 2024 with similar margins to 2023.

Profitability

Source: Seeking Alpha

Speaking of margins, Cameco is the only miner on our list to turn a profit. 

While its returns on equity, assets, and total capital aren’t amazing, they’re at least positive.

Our Opinion 7/10

Cameco is the best uranium mining company out there.

Heck, it’s the only profitable one.

We feel its stock is overextended at the moment as are uranium prices as a whole.

However, if you can catch this company between $35-$40 a share, then you’ve got yourself a decent bargain.

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