Is Cameco Stock a Buy Now?

Cameco (NYSE: CCJ) is a supplier to the nuclear power industry, providing fuel for power plants and offering an array of services necessary to build and operate reactors safely and efficiently. If you believe strongly in the future of nuclear power, Cameco could be an interesting investment to consider. But is it worth buying right now?

The nuclear renaissance is real

Nuclear power is in high demand today as technology giants have become desperate to secure reliable electricity supplies for their electricity-hungry data centers -- so much so that they are willing to reactivate retired nuclear reactors to get what they need.

Microsoft, for example, has signed a 20-year purchase power agreement with Constellation Energy for the output from the undamaged reactor at the infamous Three Mile Island plant, which should return to operation in 2028. Meanwhile, Meta inked a 20-year power deal for Clinton Clean Energy Center, which would likely have been shuttered in 2027 when a state program that subsidizes emissions-free energy is set to expire. Meta's deal effectively replaces that government support.

Image source: Getty Images.

These transactions are significant because they demonstrate the scale of demand for nuclear power from the tech sector. Both of the nuclear power plants noted above will dedicate most, if not all, of their power to the respective tech giants.

Nuclear power doesn't emit greenhouse gases and, thus, is a clean energy source. However, unlike solar and wind, which provide intermittent power, nuclear reactors provide always-available baseload power. That's increasingly important for tech companies as they rapidly build the new data center they need to support their artificial intelligence (AI) plans.

Data centers require reliable power, a fact highlighted by the recent overheating of a data center that supported CME Group's futures trading operations. Although the issue, which led to a trading halt, was caused by a failure in the data center's cooling system, it shows how fragile data centers are and why reliable power is such a central issue for them: If a data center goes down, businesses suffer instantly.

The nuclear segment is expected to be a key player in supplying the 55% increase in energy demand that utilities expect to occur between 2020 and 2040.

More nuclear energy use will mean an increased need for uranium to power it. Cameco's position as one of the largest suppliers of uranium positions it well to benefit. Meanwhile, its recent acquisition of half of Westinghouse, a major service provider to the nuclear power industry, adds a solid, less commodity-driven foundation to its revenues.

Investors have already reacted to Cameco's story

All in all, Cameco has an attractive story to tell. But before you rush out and buy the stock, take a look at its valuation. As famous value investor Benjamin Graham explained, even a good company can be a bad investment if you pay too much for it. Graham mentored Warren Buffett, so it's worth heeding his warning. And it is an important one with Cameco.

Over the past year, Cameco's stock has risen by just over 50% compared to a roughly 13% rise in the S&P 500 index. Over the past five years, the stock is up by over 770%, compared to a nearly 90% rise in the broader market. To be fair, Cameco was working its way back from the steep decline that happened following the Fukushima nuclear disaster in 2011. So at least part of that gain was a rebound from emotionally driven lows.

CCJ data by YCharts.

However, Cameco's stock is currently trading near its all-time high, even after a roughly 15% drawdown from the peak it reached earlier this fall. The rapid price appreciation has left it with a price-to-sales ratio of about 15.6, which is roughly double its five-year average. The price-to-earnings ratio of 102 is shockingly high on an absolute basis. The S&P 500 index, which is also trading near all-time highs, has a P/E of 28.5. And Cameco's price-to-book-value ratio of 7.9 is well over twice its five-year average.

It appears that investors have priced in a substantial amount of optimism about the company's future. Buying the stock at these valuations requires a strong belief in the nuclear power growth story. And even then, you should probably consider the risk that Cameco is priced for perfection. Anything short of the best-case outcome could easily lead to a negative shift in investor sentiment.

Be cautious with Cameco

Cameco is a well-run company, and the prospects for the business appear quite bright at present. So, the concern here isn't really about what you are buying, but rather about what you are paying. In the wake of its rapid price increase, only aggressive investors who deeply believe in the nuclear power renaissance should buy the stock today. Most others should probably keep it on their watch lists.

Reuben Gregg Brewer has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Constellation Energy, Meta Platforms, and Microsoft. The Motley Fool recommends CME Group and Cameco and recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.