Cameco Corporation Shares Are Climbing Today - Are They Overvalued?

Cameco Corporation, a uranium company whose shares have climbed 9.3% to a price of $29.14, is now 12.44% below its average analyst target price of $33.28. The average analyst rating for the stock is buy, so there could still be some upside potential to this stock. CCJ outperformed the S&P 500 index by 10.0% today, and by 68.2% over the last year with a return of 57.3%.

Cameco Corporation is classified within the energy sector, which encompasses the oil, gas, nuclear, and renewable energy industries. The stock prices of energy companies are highly correlated with geopolitics: economic crisis, war, commodity prices, and politics all have an effect on the industry. For this reason, energy companies tend to have high volatility -- meaning large and frequent price swings. As global energy supplies shift towards renewables, we may see a reduced correlation between energy prices and geopolitical events.

The P/E ratio is the company's share price divided by its earnings per share. In other words, it represents how much investors are willing to spend for each dollar of the company's earnings (revenues minus the cost of goods sold, taxes, and overhead). As of the second quarter of 2022, the energy sector has an average P/E ratio of 8.37, and the average for the S&P 500 is 15.97. Cameco corporation's trailing 12 month P/E ratio is 242.8, based on its trailing Eps of $0.12. The company has a forward P/E ratio of 36.9 according to its forward Eps of $0.79 -- which is an estimate of what its earnings will look like in the next quarter.

Unlike earnings, gross profits only take into account the company's cost of goods sold (i.e. cost of labor and materials only). The extent of gross profit margins implies how much freedom the company has in setting the prices of its products. A wider gross profit margin indicates that a company may have a competitive advantage, as it is free to keep its product prices high relative to their cost. In CCJ's case, the gross profit margins are 30.6%, from which we can infer that its competitive advantage is probaly not absolute, and is facing some pricing pressure from other companies within the same market.

Companies have many other costs and sources of income occurring outside of their core business. Everything from equipment depreciation, returns on capital investments, legal costs, income from intellectual property, and interest payments on debt factor into the company's ultimate profitability. We can see the effect of these additional factors in Cameco Corporation's levered free cashflow of $451,759,616. With its positive cashflow, the company can not only re-invest in its business, it can offer regular returns to its equity investors in the form of dividends. Over the last 12 months, investors in CCJ have received an annualized dividend yield of 0.3% on their capital.

Another valuation metric for analyzing a stock is its Price to Book (P/B) Ratio, which consists in its share price divided by its book value per share. The book value refers to the present liquidation value of the company, as if it sold all of its assets and paid off all debts. Cameco's P/B ratio indicates that the market value of the company exceeds its book value by a factor of 2, so the company's assets may be overvalued compared to the average P/B ratio of the Energy sector, which stands at 1.36 as of the second quarter of 2022.

Despite its very high P/E ratio, Cameco is likely fairly valued at today's prices because it has an average P/B ratio, decent profit margins, an analyst consensus of some upside potential, and strong cash flows. We hope you enjoyed this overview of CCJ's fundamentals. Before you reach your own decision, be sure to check the numbers for yourself, especially focusing on their trends over the last few years.

Thanks for reading! Make sure to subscribe to our free newsletter for daily equity reports.

The above analysis is intended for educational purposes only and was performed on the basis of publicly available data. It is not to be construed as a recommendation to buy or sell any security. Any buy, sell, or other recommendations mentioned in the article are direct quotations of consensus recommendations from the analysts covering the stock, and do not represent the opinions of Market Inference or its writers. Past performance, accounting data, and inferences about market position and corporate valuation are not reliable indicators of future price movements. Market Inference does not provide financial advice. Investors should conduct their own review and analysis of any company of interest before making an investment decision.