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Canadian uranium producer Cameco (TSX:CCO) has caught investors’ attention after its shares surged 72 per cent last year, placing it among the list of top-performing TSX stocks. However, over the past month, the company’s shares have retreated, falling about 10 per cent from their 52-week high. So, is this a buying opportunity?
Investors are looking at this stock because Cameco is one of the world’s largest uranium producers, engaging in the exploration, mining, refining, conversion, and fabrication of uranium, then sold as a fuel for generating electricity in nuclear reactors. Cameco has been playing a crucial role in the supply of uranium, especially in the backdrop of the renewable energy transition. Data shows that 20 per cent of the United States currently relies on nuclear energy to generate electricity, and that percentage is set to rise in the near future.
And outside the United States, countries around the world are building their own nuclear reactors, including in densely populated areas such as India and China. With these projects also underway, and with Western sanctions against Russian uranium continuing, the demand for Cameco’s uranium is expected to grow.
Cameco stock has seen impressive growth over the past five years, however, the shares have seen some recent declines, likely due to normal market volatility. In fact, the company has turned from losses to profits in recent years.
In its February quarterly report, the company said higher sales and higher uranium prices pushed up profits, with net income of C$80 million last quarter, far better than the $15 million loss in the same period last year. Revenue also rose to C$844 million, up 61 per cent compared to the same period last year. The company managed to sell 9.8 million pounds of uranium during the quarter, an increase of 42 per cent. With uranium prices breaking through 16-month highs, tight supply could mean more record growth ahead for the company.
Cameco stock’s recent 10% drop should have nothing to do with the company itself. Fundamentally, higher uranium prices and rising production allow the company to continue to benefit from long-term contracts, and clients are expected to continue to choose the company for years to come.
What’s more, uranium will continue to power nuclear reactors, which are key to the clean energy transition, for decades to come. As such, a drop in the stock price should be an opportunity for investors to consider buying. It’s worth pointing out that the stock is valuation is a bit high, but given the strong fundamentals, the risk of holding the stock over the long term remains manageable.
