Ride the Uranium Bull with NuScale Power Stock (NYSE:SMR) Options
Stock Analysis & Ideas

Ride the Uranium Bull with NuScale Power Stock (NYSE:SMR) Options

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Although NuScale represents a risky venture, those interested in significant upside potential may consider buying SMR stock options, as the underlying enterprise offers an overlooked catalyst amid the uranium shortage dilemma.

With the critical nuclear energy industry facing a shortage dilemma, high-risk NuScale Power (NYSE:SMR) finally has an opportunity to make good on its earlier promise. Operating as a provider of small modular reactors or SMRs, NuScale’s core business features efficiencies that traditional nuclear power plants lack. And this attribute directly plays into the broader uranium shortage. Based on the favorable math of the narrative, I am bullish and long SMR stock.

A Supply Shortage Boosts SMR Stock

Sometimes in life, you take what you can get, and that’s the case with SMR stock. Although the stock suffered in 2023 – partly due to a scathing short-seller report – NuScale could be poised to have a standout performance in the new year. That’s thanks to a catalyst that underscores the vitality of the SMR platform.

According to The Wall Street Journal, miners have struggled to extract enough uranium out of the ground, pushing prices to multi-year highs. Most notably, Kazatomprom – Kazahkstan’s state uranium company – disclosed that shortages of key materials like sulfuric acid have stymied efforts to produce yellowcake, a type of uranium concentrate powder used in the preparation of uranium fuel.

Fundamentally, one of the key issues in the supply shortage crisis is the concentration of uranium mining production. According to the World Nuclear Association, about two-thirds of world production stems from Kazakhstan, Canada, and Australia. Among enterprises, Kazatomprom represents 23% of total production, leading all competitors by a wide margin.

Adding to the dilemma is the rising need for uranium. As TipRanks contributor Michael Byrne noted in November, government agencies from growing nations are building nuclear reactors. Based on this upward population trend, demand should increase. Therefore, this hunger for energy-related commodities only exacerbates the uranium shortage.

Of course, one beneficiary is SMR stock. Just in the past five sessions, shares gained 15%, and they may continue to rise because of the underlying efficiencies.

For starters, the International Atomic Energy Agency (IAEA) points out that SMRs have reduced fuel requirements. Second, the Office of Nuclear Energy notes that SMRs can be coupled with other energy sources to produce higher efficiencies. In other words, NuScale’s facilities can do more with less – which is almost the perfect catalyst for the current environment.

Bears Risk Getting Blown Up by Contrarians

Despite the powerful relevancies now undergirding SMR stock, the overriding reality is that it has fallen by 73% in the past 52 weeks. Stated simply, the bears still have control of the market. As such, the pessimists likely view the rise in NuScale stock as an opportunity to sell into it. However, they could be making a mistake.

Among bears in the open market, the short interest of SMR stock reached 29.44% of its float. Anything over 20% is considered an extremely high magnitude of short interest. Further, the short-interest ratio is elevated at 6.64 days to cover. That means traders will require more than a week to cover all bearish positions based on average trading volume.

However, directly shorting a security can be extremely problematic if it rises in value. Essentially, short traders would be obligated to return the borrowed securities that were used to initiate the short position at a higher (and potentially loss-inducing) price. Subsequently, the upward price movement could put pressure on anyone selling short calls.

Such a scenario could be playing out now. According to TipRanks’ unusual options activity screener for SMR stock, it noted bearish sentiment for the Aug 16 ’24 3.00 Call on January 10. Currently, the open interest for this option stands at 539 contracts.

Jumping into the mix, investment data research platform Fintel points out that three investment funds initiated a short position against SMR stock in December last year. Granted, heavy short interest against a company generally reflects poorly on the business. However, one must also keep in mind that with so much energy stacked on one side of the trade, a positive catalyst could spark a covering panic.

Given the bullish supply shortage fundamentals, the risk-reward profile likely supports buying the $3 August calls, not selling them. Considering the mobility of SMR stock, a speculator may even want to consider $3 calls with a closer expiration date.

Risky Financial Situation

Although SMR stock may offer a tempting proposition, traders can’t ignore the reality that it’s a high-risk endeavor. Most glaringly, the financials could use serious work. While the company has generated impressive percentage-basis revenue growth, the path to profitability isn’t clear. And as other companies begin competing in the SMR space, NuScale may see its first-mover advantage in the U.S. decline.

Is NuScale Power Stock a Buy, According to Analysts?

Turning to Wall Street, SMR stock has a Moderate Buy consensus rating based on two Buys, one Hold, and zero Sell ratings. The average SMR stock price target is $6.13, implying 99% upside potential.

The Takeaway: SMR Stock Suddenly Became Relevant Again

Although NuScale Power represents a high-risk endeavor, the global uranium supply shortage suddenly put SMR stock in the driver’s seat. With the narrative prioritizing efficient use of a now-limited resource, this plays right into NuScale’s hands, which can do more with less. Therefore, buying SMR call options arguably makes much more sense than selling them.



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