Up 35%, Is Cameco Stock a Buy in June 2024?

When a stock is bullish, and you have missed the starting point of the trend, it can be challenging to identify the right time to buy the stock.

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The global “attitude” about different energy sources has changed a lot in the last few years as the world pushes towards a greener future. It’s clear that despite their potential, we are a long way from relying solely on renewables for the world’s power needs.

This is encouraging the world to look for a “transitional” power source between fossil fuels and a fully renewable-based future, and nuclear power is the most viable solution.

According to the World Nuclear Association, there are about 440 nuclear plants operational worldwide (32 countries), 60 more under construction, and 110 more planned for the future.

With nuclear power seeing a large-scale revival, the importance and value of uranium producers like Cameco (TSX:CCO) have gone up considerably. Uranium stocks are also being considered solid picks from an ESG (environmental, social, and governance) investing perspective, though that’s a debatable stance.

The company

Canada has long been the second-largest uranium-producing country in the world, behind Kazakhstan, which is the largest producer by a significant margin. The bulk of Canadian uranium production (over 75% in 2022) comes from Cameco.

In 2022, Cameco alone was responsible for 12% of the global uranium output. It is also the largest publicly traded uranium producer in the world, as the only company that supersedes it in annual uranium production is state-owned.

The company has an impressive portfolio of uranium-producing properties/assets around the globe, including one in Kazakhstan, where Cameco has a 40% ownership stake.

It also has a considerable ownership or operator stake in three Canadian and three Australian uranium production assets. It also has the world’s largest uranium refinery in Canada.

The stock

Even though Cameco is technically counted among Canadian energy stocks, it shares almost no performance pattern with the energy sector, and its revenues and investor sentiment rely heavily on uranium demand (existing and future).

Uranium prices started rising sharply after the first quarter of 2023, and this pricing growth augmented an already bullish Cameco stock. As a result, the stock rose by about 455% in the last five years. The growth pace has slowed, but it’s still impressive at 35% since the beginning of this year.

Many of the core strengths of Cameco still stand and may even get enhanced if the company ramps up its uranium production to meet the global demand. New orders, an increase in the number of nuclear reactors coming online, and expedited construction of the ones currently being built may also increase the company’s perceived value.

Foolish takeaway

The question is whether Cameco is still worth buying, considering the slowdown of the growth momentum, leveling of uranium prices, and the stock’s overvaluation represented by a price-to-earnings ratio of 140. While it’s true that the current momentum may keep carrying the stock up for weeks or months yet, a safer approach might be to wait a bit before buying Cameco.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Adam Othman has no position in any of the stocks mentioned. The Motley Fool recommends Cameco. The Motley Fool has a disclosure policy.

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