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Investment Thesis
It’s 2 months since I wrote my previous bullish analysis on Energy Fuels Inc. (NYSE:UUUU), that I titled “Left For Dead, Unjustifiably.”
And since that time, so much has happened. Were the recent earnings result the main catalyst for this stock? You may be surprised to hear that it’s not even close.
Energy Fuels is primed to do quite well in the twelve months. And I know that many investors have heard a similar spiel in the past two years. But I believe that this time it’s different.
And here’s why.
Why Invest in Uranium?
Energy Fuels’ prospects are predominantly tied to the uranium story. Yes, it does hold exposure to vanadium’s prospects (that I previously estimated to be worth around $15 million). But the vast majority of its business is tied to uranium.
Next, with energy prices for oil and natural gas in the U.S. materially lower than in this same period a year ago, many investors have stopped thinking about ”energy security” as a critical requirement of governments.
However, the U.S. Senate hasn’t stopped thinking about U.S. energy requirements. In fact, just a few days ago, the U.S. Senate sought to pass a bill that would expedite the deployment of a new fleet of advanced nuclear reactors. Why is this important?
The Great Energy Transition, A Reality Check
When it comes to the ”great energy transition,” we need a lot more than just political rhetoric. We require political action. And I believe that this bill gets to the heart of the matter.
Next, allow me to add further context.
What you see above is EIA data showing that natural gas is still the main source of electricity in the U.S.
For all this ”talk about the energy transition,” various sources show that renewables are still far from displacing natural gas, see below.
To put it concretely, our dependency on electricity for natural gas is going nowhere fast unless the political winds start to make it so.
And this bill provides the foundation for the acceleration of our path to decarbonize.
Deep Value Returns’ members know that I argue for Deglobalization, Decarbonization, and Digitalization (the 3 Ds)
Everything from AI to using aircon uses electricity. And heat pumps in our houses? And what about charging our electric vehicles (“EVs”)? Everything that we do in the future requires more electricity, not less. So the demand for electricity is moving higher. We are digitalizing our world. Even our fridges will have AI tell us how many calories we are consuming.
And for now, there’s the belief that efficiencies will somehow bring our demand for electricity down? I ask of you, how?
Moving forward, let’s discuss the supply of electricity. As I’ve noted already, the bulk of electricity comes from natural gas.
If we are so intent on the second D, decarbonization, how can we possibly supplement the greater demand for electricity?
This is my critical contention. We can only digitalize our economies while decarbonizing our energy supply if we embrace all carbon-free energy sources.
That’s where I believe uranium comes into the picture. While the political winds are important as a stepping stone to the bull thesis, I don’t believe it’s the whole story. This is what I believe in fact the whole story starts to come to life.
The price of uranium has shot up. There’s no ambiguity. Everything that Energy Fuels has been discussing in the past year has finally started to make itself evident.
Naturally, this takes to discuss why Energy Fuels is a compelling investment.
Why Energy Fuels? Why Now?
Energy Fuels is not particularly cheaply valued. As you can see above, Energy Fuels is priced at about 30x forward sales. Not earnings but sales. And multiples times higher on its future earnings prospects.
However, I make the case that the market is forward-looking. These figures are likely to be significantly upwards revised in the next twelve, as the prices of uranium continue to gain momentum. And that’s starting right now.
The Bottom Line
Energy Fuels hold promising investment prospects driven by the rising demand for uranium.
As the U.S. Senate pushes for advanced nuclear reactor deployment, the urgency to ensure energy security comes to the forefront.
The dominance of natural gas in electricity generation highlights the need for carbon-free alternatives like uranium. With soaring uranium prices and a forward-looking market, Energy Fuels Inc. stock presents an attractive investment opportunity poised for substantial growth.