Uranium mining and exploration company Uranium Energy Corp. (UEC) in Corpus Christi, Tex., is engaged in pre-extraction, extraction, and processing of uranium in the United States and Paraguay. It holds interest in several projects, including Palangana mine in Texas, Slick Rock in Colorado, and Alto Parana titanium projects in Paraguay. 

UEC’s stock has gained 84.1% in price so far this year and 62% over the past month. This can be attributed primarily to uranium prices hitting an eight-year high this month, following the recent launch of an exchange-traded trust by Sprott Asset Management LP and the growing utilization of nuclear power as a low carbon emission energy option.

But UEC’s stock is currently trading 20.7% below its 52-week high of $3.77. Moreover, COVID-19 pandemic-related supply disruptions on uranium mining and issues with processing activities could make it challenging to meet the growing demand. And the industry’s cyclical nature only makes matters worse. This volatile backdrop could  cause the  stock to experience a  downtrend.

Here’s what could influence UEC’s performance in the near term:

Uranium’s Growing Demand-Supply Gap

Because  the use of nuclear energy continues to expand as governments worldwide implement decarbonization measures to combat climate change, demand  for uranium to satisfy the capacity of nuclear reactors used to generate electricity has been growing. However, according to the World Nuclear Fuel Report, secondary uranium supplies are expected to have a gradually diminishing role in the world market, decreasing from supplying 14-18% of uranium reactor requirements currently to 5-8% in 2040. Although the partial resumption of operations of idled mines could improve the near-term supply situation, the future production capacity of uranium remains uncertain given that there is only a limited supply of uranium that can be extracted at a reasonable cost.

As the supply-demand gap continues to widen, uranium miners like UEC could face a roadblock in their operational growth.

Inadequate Financials

During its fiscal third quarter, ended April 30, 2021, UEC’s operating loss totaled $4.86 million, up 54% year-over-year. Furthermore,  the company’s interest income came in at $89.42 million, representing a 47.5% increase from its year-ago value. Also, its net loss for the period rose 40.2% year-over-year to $4.59 million. In addition, UEC’s total comprehensive loss amounted to $4.1 million for the quarter, up 9.2% from the prior-year quarter.

The company’s trailing-12-month ROTC, ROA, and ROE came in at negative 7.8%, 10.7%, and 16.3%, respectively. And its  trailing-12-month cash from operations stood at  negative $37.79 million.

Consensus Price Target Indicates Potential Downside

Currently trading at $2.99, the $2.34 consensus price target indicates a potential 21.7% decline.

POWR Ratings Reflect Bleak Prospects

UEC has an overall F rating, which translates to a Strong Sell in our POWR Ratings system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree. 

Our proprietary rating system also evaluates each stock based on eight distinct categories. UEC has a D grade for Quality and Stability. The stock’s negative profit margin and volatility are reflected in these grades.

Also, it has an F grade for Value. This is consistent with the company’s 5.14x trailing-12-month Price/Book ratio, which is 248.8% higher than the 1.48x industry average.

In addition to the grades we’ve highlighted, one can check out additional UEC ratings for Sentiment, Momentum, and Growth here.

UEC is ranked #37 of 38 stocks in the D-rated Industrial – Metals industry.

Bottom Line

A surge in uranium prices following the entry of the Sprott Physical Uranium Trust Fund, which has been buying large stockpiles of uranium from the spot market, has been driving up the shares of UEC lately. However, concerns related to the widening demand-supply gap in uranium and growing near-term costs due to pandemic-induced supply disruptions could cause the stock to suffer  a pullback in the coming months. Furthermore, its weak profitability and financials could limit its growth prospects. As such, we think the stock is best avoided now.

How Does Uranium Energy Corp. (UEC) Stack Up Against its Peers?

While UEC has an overall POWR Rating of F in our proprietary rating system, one might want to consider investing in A-rated (Strong Buy) stocks in the same industry, such as Ryerson Holding Corporation (RYI) and Vale S.A. (VALE).

UEC shares fell $2.99 (-100.00%) in premarket trading Tuesday. Year-to-date, UEC has gained 69.89%, versus a 16.85% rise in the benchmark S&P 500 index during the same period.

About the Author: Imon Ghosh

Imon is an investment analyst and journalist with an enthusiasm for financial research and writing. She began her career at Kantar IMRB, a leading market research and consumer consulting organization. More...

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