Could Buying NuScale Power Stock Today Set You Up for Life?
Key Points
On paper, NuScale Power appears positioned to benefit from renewed appreciation for nuclear power as a clean energy source.
However, other factors signal why shares have fallen by 80% and why a 5x to 10x move higher could prove challenging.
Long-term growth investors may want to skip this chancy growth play for now.
As recently as last fall, NuScale Power (NYSE: SMR) shares traded above $50 per share. Today, you can buy this once-popular growth stock for around 80% less, as it trades just above $10 per share.
However, before making this busted growth stock a "bottom-fisher's buy," you may want to consider various factors, or should I say, red flags.
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These red flags call into question the merits of buying this popular nuclear energy stock at current prices.
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Why NuScale Power may still seem appealing
Despite the stock's massive drop over the past nine months, there are numerous factors that, at first, may make NuScale Power seem like an overlooked gem hiding in plain sight. NuScale, unlike some other early-stage nuclear technology companies, has already obtained certification from the U.S. Nuclear Regulatory Commission (NRC) for its small modular reactor (SMR) design.
This distinction alone makes NuScale a top contender in this space. Alongside this, NuScale is a first mover in a space with accelerating demand. The U.S. federal government made the advancement of nuclear energy a priority.
With the rise of artificial intelligence (AI) data centers, there's an increasing demand for flexible yet high-density energy, which SMRs can provide. Put it all together, and it appears reasonable to believe that this industry could take off and that stocks like NuScale could "scale up" fivefold, tenfold, perhaps even higher. Yet while this company may grow exponentially in the years ahead, its stock price may not necessarily follow suit.
The many caveats that scream "stay away"
What do I mean when I say NuScale could grow fivefold to tenfold, yet the stock price may not do the same? I'm talking about the high risk of further share dilution with this stock. Despite its public company status and its partnership with Entra1 Energy to commercialize its technology, NuScale has yet to fully enter the commercialization stage.
At the same time, NuScale is burning through cash at an increasing rate. Add in the fact that NuScale recently sought approval to double its authorized share count, and it's hard not to anticipate a round of heavy shareholder dilution down the road. In other words, it's unclear when exactly NuScale will start building and selling SMRs on a large scale. It's also unclear whether the company will need to raise billions more to scale up and cover initial losses.
Hence, I can see a scenario where NuScale's market cap rises 5x to 10x, but, due to share dilution, shareholders' returns are far less stellar. There's also a risk that other, better-capitalized SMR companies will eventually take a leading market share. Add in other concerns, such as the fact that financial backer Fluor has opted to start selling off its position in NuScale, and there are simply too many factors saying "skip for now" and not enough suggesting now is the time to buy this renewable energy stock.
Thomas Niel has no position in any of the stocks mentioned. The Motley Fool recommends NuScale Power. The Motley Fool has a disclosure policy.