Is It Too Late to Buy NuScale Power Stock?
Is it too late to buy a stock that has risen more than 150%? For many stocks the answer would be yes, you've probably missed the boat. But for NuScale Power (NYSE: SMR), the answer may be a more surprising one -- it's probably too early for most investors to consider buying the company. What's going on here?
NuScale has a great plan
NuScale operates in the nuclear power sector. Nuclear power is often looked on with disdain because of the high-profile power plant meltdowns that have occurred in the past, including Fukushima and, even further back, Chernobyl. However, nuclear power doesn't produce any carbon dioxide, and it provides a consistent level of output. Thus, it is a clean energy source of base load power. Combined with variable clean energy sources like solar and wind, it could help the world to more quickly transition away from carbon power sources like coal and natural gas.
Image source: Getty Images.
The image problem and the high cost of building large power plants has, however, been a large impediment to nuclear power's widespread adoption. NuScale hopes to help with this by creating small nuclear power plants that can be produced in a cost effective manner and be operated with lower risks. And the system it is working on is designed to be scalable, so units can be operated together (up to 12 at once) to produce more power in a single location. It is a compelling story.
Investors seem to appreciate the potential here right now, given that the stock has rallied a massive 150% in just three months' time. That's a huge advance that, in most situations, would suggest that anyone looking at the stock today had missed out. And that might have been true if NuScale actually had even a single nuclear power plant up and running.
It's probably too soon to buy NuScale
Although NuScale does generate some revenue, the company is still largely a story stock. That's because it has yet to see one of its reactors get built. As the company likes to note, it is "the only technology provider and producer of SMRs that has obtained U.S. regulatory approval." That's a big step in the right direction. And it recently inked a deal to deliver up to 24 of its reactors for power projects in Ohio and Pennsylvania, which is also a big step forward. However, investors need to understand that it still hasn't delivered anything of note just yet.
That is where a quick look at the company's financial statements comes in. It ended the first quarter of 2024 with roughly $130 million of cash on its balance sheet. But the quarterly loss was $16.5 million, driven by research and development spending of $13.1 million, general and administrative costs of $19.4 million, and "other" costs of $12.1 million. The company is still in the development stage, so most of those costs are likely to remain high for the foreseeable future, which management clearly states in its annual report under the risks section: "We have incurred significant losses since inception, we expect to incur losses in the future, and we may not be able to achieve or maintain profitability."
All in all, it will likely remain unclear if it can create a sustainable business until the company delivers at least one of its nuclear power units. And even then, that's basically just going to be a proof of concept. It has to be able to produce nuclear power units consistently and profitably. It will probably be years before NuScale has proven it can do that. But doing a little math, its cash balance can only support about three quarters of spending at current levels. There's no imminent risk, per se, but this appears to be a company that will be burning through cash for years, and doesn't have all that much cash to burn.
Don't rush, Mr. Market may be a bit overexcited today
Wall Street habitually extrapolates good news too far into the future, which often leads to big stock rallies even though there's no concrete reason for the advance. Yes, it is good news that NuScale inked a deal with a customer, but it still hasn't actually delivered anything yet, and it will likely be years before it proves it can reliably build small nuclear reactors at scale and profitably.
You probably haven't missed out here and buying now could actually result in buying too soon if anything goes wrong with the contract that has investors so excited right now. Only more aggressive investors should be considering adding this nuclear power stock to their portfolios.
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Reuben Gregg Brewer has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends NuScale Power. The Motley Fool has a disclosure policy.
