Where Will Cameco Corporation Be in 5 Years?

"Buy low, sell high" -- that's most investors' goal when investing in a stock, but it's easier said than done. How do you know if a stock will go up or down before you buy it?

Take Cameco Corporation (NYSE: CCJ) for example. It's the biggest publicly traded uranium mining stock by market cap in the world and the second biggest by sales. (In Kazakhstan, Kazatomprom makes more money but is worth less). Helped by surging uranium prices, Cameco stock nearly doubled last year, but it's underperformed the S&P 500 in 2024. Will it regain its mojo, or are Cameco's best days behind it?

Examining where Cameco is today, where management says it's going tomorrow, and where Wall Street thinks it will be five years from now can help us to figure out if Cameco stock is going up or down.

Where Cameco stock is today

Cameco Corporation released its Q3 earnings early last month, and the news was both good and bad. On the good side, generally improved uranium prices in 2024 helped Cameco grow its sales 25% to $721 million. On the bad side, those sales weren't particularly profitable for Cameco.

In fact, calculated by generally accepted accounting principles (GAAP), Cameco's earnings plunged 94% year over year to just $0.02 per share. On an adjusted basis, pro forma profits turned negative.

However, investors did not punish Cameco for its earnings miss. As of the close of trading Wednesday, the day before Thanksgiving, Cameco stock was actually up almost 13% from its pre-earnings price.

So why are investors so optimistic about Cameco?

What Cameco expects to do between now and 2030

Q3 earnings may have underwhelmed, but as CEO Tim Gitzel cautioned, Cameco's profits "can vary significantly" from quarter to quarter. Cameco believes investors are better served by looking beyond mere quarterly profits and focusing instead on longer-term trends in uranium prices and the company's own "improving operational performance and cash flow generation."

So, what do these trends look like? Gitzel argues that "heightened geopolitical uncertainty, global production shortfalls, and transportation challenges in 2023" are all factors combined to keep uranium prices high. At the same time, thanks to the growing demand for electricity to power artificial intelligence, cryptocurrency mining, and similar uses, "the demand outlook [for uranium] is stronger and more durable than ever."

While supply and demand are roughly in balance today, in a February presentation for investors, Cameco predicted that by 2030, global demand for uranium could outstrip supply by roughly 50 million tons per year, forcing prices higher as buyers compete for scarce supplies. In further evidence of its confidence, Cameco increased its dividend rate by 50% in 2023 and by 33% in 2024 -- and plans a further 50% increase between now and 2026 (to $0.24 per share).

What analysts think Cameco Corporation will earn in 2030

So, what does this mean for Cameco, in dollars and cents? Analysts polled by S&P Global Market Intelligence foresee Cameco earning about $0.26 per share this year, which at the stock's current $58 share price implies a current-year P/E ratio of well over 200.

Not cheap.

However, analysts agree with Cameco management that both demand for uranium and the price Cameco can charge for supplying it will grow over time, resulting in strong profits growth. By 2030, analysts say Cameco will earn $2.94 per share pro forma, with GAAP earnings coming in perhaps a little lower. That works out to a P/E ratio of 20 -- albeit for earnings five or six years in the future, that Cameco may or may not actually end up earning.

Is Cameco Corporation stock a buy?

And this, in a nutshell, is the dilemma investors face when deciding whether to buy Cameco stock. At 200-plus times current-year earnings, Cameco stock seems obviously overpriced. Even taking future earnings growth as a given, analysts only forecast earnings to grow about 40% or so annually from now through 2030.

To me, that simply doesn't justify a 200x current P/E ratio.

Plus, there's no guarantee that Cameco will, in fact, grow at 40%. Uranium prices today are down from highs hit in January. And yet, in historical terms, the fuel's price remains abnormally high. Prior to 2024, the last time uranium sold for $80 a pound for any length of time was in 2007. Usually, the price is a lot less, and uranium is a lot less profitable to mine.

If nuclear power turns out to be less popular than predicted, or if other miners increase output to meet demand, then uranium prices could easily revert back to what's been historically "normal." And Cameco could earn a whole lot less than Wall Street predicts five years from now.

Ultimately, I think it is more likely that five years from now, Cameco stock will have gone down, not up.

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Rich Smith has no position in any of the stocks mentioned. The Motley Fool recommends Cameco. The Motley Fool has a disclosure policy.