Thursday, 21 March 2024

Why NuScale Power Stock Keeps Going Down

by BD Banks

NuScale Power (NYSE: SMR) shrugged off the report of a money-losing fourth quarter last week, but it can’t quite shake the effects of a Wall Street sell rating. After Wells Fargo downgraded the stock to underweight yesterday, NuScale shares lost 35% — and they’re losing another 23% through 11 a.m. ET on Wednesday.

NuScale’s (very) recent ups and downs

The producer of small modular nuclear reactors reported horrible earnings last week: Quarterly sales nearly doubled, but quarterly losses were twice as bad as anticipated, at $0.25 per share, and the total loss for the year was more than $180 million.

The company shook off this bad news thanks to a vote of confidence from Canaccord Genuity on Monday that sent its shares soaring. But on Tuesday, Wells Fargo gave investors a reality check. “Investor enthusiasm for SMR is misguided,” Wells Fargo said, and NuScale’s small modular nuclear reactors were simply “not cost competitive” with competing energy sources. Investors panicked, and the stock sold off.

Is NuScale stock a sell?

It’s continuing to sell off today, as investors look past Canaccord’s endorsement to focus on NuScale’s actual numbers. This company has only $120 million in the bank but is burning through cash like mad: $185 million in negative annual free cash flow.

It’s running out of cash and will almost certainly have to sell more shares within a year, diluting its shareholders in the process and driving its stock lower.

NuScale might still have a future. If it can remain solvent and keep doubling its sales year after year (sales are expected to more than double this year, then more than triple in 2025), analysts think the company could turn free-cash-flow positive in 2026 and become profitable by 2027. But it currently lacks the cash to do that.

If you intend to stick with NuScale stock, expect to get diluted a lot between now and profitability.

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Wells Fargo is an advertising partner of The Ascent, a Motley Fool company. Rich Smith has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends NuScale Power. The Motley Fool has a disclosure policy.