Shares of Canada’s premier uranium miner Cameco (TSX:CCO) are now down 31% from their 52-week high. The company reported fourth-quarter results last week, and despite a 21% year-over-year increase in sales in 2024, earnings plummeted by more than 50% to $0.39 per share.
Following the earnings, Cameco stock continued its recent drop. So, does the stock’s huge decline provide a buy-the-dip opportunity for potential investors?
Considering that Cameco’s investment in leading nuclear services provider Westinghouse continues to pay off, the company is well positioned to further strengthen its market position. Management is planing to invest in strengthening the sustainability and reliability of its existing operations to ensure production flexibility in the event of a rise in global uranium demand.
At the same time, the company plans to reopen uranium mines that were closed following the Fukushima nuclear accident, which will help strengthen Cameco’s market position as uranium prices rebound and supplies tighten.
Tim Gitzel, Cameco’s chief executive officer, recently emphasised that the current supply-demand dynamic is one of the most promising periods for the uranium market in the last four decades. With governments around the world committed to reducing carbon emissions, the role of nuclear energy in the global energy mix is likely to continue to expand, and Cameco is expected to continue to generate strong results through 2025.
Cameco is currently valued at close to $19bn, with the company earning $119m over the past 12 months, its price to earnings ratio is 162x. Certainly, when valued on a free cash flow (FCF) basis, Cameco stock looks a bit more attractive. Last year, the company generated $482 million in free cash flow, reducing its P/E ratio to 40 times.
Obviously, the key factor in determining the fate of Cameco stock is the price of spot uranium. And over the past year, the price of uranium per pound has plummeted about 31 per cent from a high of close to $95 a year ago, and is currently around $65.
Though the current price is still above what experts say is the break-even point of $60, it’s not enough to propel miners like Cameco to earn huge profits for some time to come.
Looking ahead, if Cameco’s earnings grow, the current valuation level may be reasonable. But if earnings continue to decline, along with a uranium price chart that shows things are deteriorating, investors should remain cautious enough about this stock.
