On Friday, the share price of Cameco Corporation witnessed a decrease.
Initially, it appeared that Cameco Corporation's (CCJ) stock was heading upwards after releasing its 2024 earnings. However, the tide turned, with the stock losing a penny from its price. The selling pressure continues today, and at 11:05 a.m. ET, Cameco's stock has dived 4.9%.
I suspect the earnings report and the state of the uranium market both play a part in this downward spiral.
Cameco's Earnings and the Rollercoaster Uranium Price Chart
Cameco managed to boost sales by 21% year over year in 2024. Yet, earnings took a nosedive, plummeting more than 50% to a mere $0.39 per share. Management remains optimistic, forecasting a bright future for nuclear power and nuclear fuel fundamentals for the next several years.
Unfortunately, the price of uranium isn't cooperating. From near $95 a year ago, uranium's value has plummeted a whopping 31% over the last year. At the moment, uranium prices hover around $65 per pound, a precarious perch.
Experts argue that the $60 price point is the sweet spot for miners. When uranium prices exceed this figure, suppliers are incentivized to ramp up production, driving prices even lower. But if prices hang just above $60, miners like Cameco can still enjoy strong profits. Unfortunately, the current situation puts the industry in the unfortunate position of holding neither world.
Is Cameco Stock a Sound Investment?
Given Cameco's valuation and earnings, it's hard to justify buying the stock. With a market cap of over $19 billion, the company has generated only $119 million in earnings over the previous 12 months. That translates to an exorbitant price-to-earnings ratio of 162.
However, looking at free cash flow (FCF), the picture becomes a bit brighter. In 2024, Cameco boasted an impressive $482 million in positive FCF, resulting in a more reasonable price-to-free-cash-flow ratio of just 40.
Although vaguely encouraging, the price-to-free-cash-flow ratio isn't enough to convince us to take the plunge. With earnings on a downtrend and the uranium price chart pointing to ongoing struggles, I'm afraid I have to decline recommending Cameco stock at this juncture.
- Given the worsening uranium market, investors might want to reconsider their plans for investing in Cameco Corporation's stock, considering the significant drop in uranium prices over the past year.
- Despite Cameco's ability to increase sales in 2024, the company's earnings took a hit, and the price of uranium, a key commodity for Cameco, has plummeted, potentially impacting the company's financial performance.
- In light of Cameco's earnings report and the ongoing struggles in the uranium market, some financial analysts might think twice before recommending investing in CCJ stocks in 2024.
- As Cameco's stock continues to decline, with investors losing interest in the company due to the downturn in the uranium market, financial experts may consider alternative investment options with stronger prospects for positive returns.
