Is Oklo Stock a Buy Now?

The share price of nuclear start-up Oklo (NYSE: OKLO) has been giving investors heartburn over the last few months. After peaking in October at nearly $175/share, it's fallen 55% since then, and now trades for less than $80/share.

While the stock is still up by more than 250% so far this year, even nuclear bulls must be asking themselves whether this is a temporary setback or the start of a long-term downtrend.

Would buying Oklo's stock now be trying to catch the proverbial falling knife? Or is this the perfect opportunity to buy the dip? Here's what investors need to know.

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The waiting is the hardest part with Oklo

The most frustrating thing for fans of Oklo (the business) is that the recent share price volatility is coming pretty much out of nowhere. There's been no substantial change whatsoever in Oklo's plans, business model, or investing thesis since August, when the company was selected for inclusion in the U.S. Department of Energy's Reactor Pilot Program.

That selection was announced on Aug. 13, and the stock barely moved at all for an entire month. Then, suddenly, it skyrocketed 110.5% on no significant news, and tumbled 55% on no significant news.

This is why many investors won't want to buy stock in pre-commercial companies like Oklo. Because the company is only just now building its first Aurora Powerhouse -- a prototype of its unique small modular sodium-cooled fast reactor design -- it has no revenue, profits, customers, or business to evaluate. That means most of its stock moves are based purely on speculation and are generally unpredictable. It will be years before anyone knows whether the business even has a shot at viability, much less profitability.

Investors who don't want to wait -- or who can't stomach the volatility while they wait -- certainly shouldn't buy into this risky and speculative company now.

Oklo has one way to succeed, many ways to fail

Even investors who aren't risk-averse, don't mind the wait, and are able to take the wild share price swings in stride, should be aware of the hurdles that exist for the company.

Oklo's reactor design is based on technology that has been around for decades, but which has never been applied in quite this way before. The U.S. did have a working sodium-cooled fast reactor for decades during the 20th century, but it was a full-size reactor as opposed to the small modular reactor (SMR) that Oklo is proposing, and it has since been decommissioned. Meanwhile, although there are currently a handful of operational SMRs around the world, none have yet been approved for operation in the U.S.

Based on the existing science, Oklo's SMR should work -- although if it doesn't, it's basically game over for the company and its investors -- but the big question is how well it will work and whether it's viable at scale. If the reactor doesn't generate as much electricity as projected; or if it costs too much to build, operate, or maintain; or if one of dozens of other variables is just a little bit off, Oklo may not be able to sustain its business.

For speculators and short-term investors, this may not matter much. If Oklo notches some short-term wins, its stock price is likely to go up in response, giving early entrants an opportunity to cash out at a profit. But for long-term buy-and-hold investors -- the strategy advocated here at the Motley Fool -- short-term gains followed by long-term price stagnation isn't a worthwhile option.

The valuation question

Within the past year alone, Oklo has been valued at everything from $2.75 billion in April, $25.7 billion in October, and now $12.2 billion in December. But what would it actually be worth if it were up and running successfully?

In Q2, Oklo said it had a customer pipeline for 14 gigawatts (GW) of electricity generation across multiple customers and sectors. Utility companies with slightly lower generation capacities like PPL Corp. and WEC Energy Group have market caps of $25.7 billion and $34.2 billion, respectively (although both also provide other services beyond power generation). That suggests plenty of upside to Oklo's current share price, if it can deliver. And as we've said earlier, that's a big "if."

Ultimately, though, that "if" is what's going to determine whether Oklo is a buy at the current price. If Oklo is able to bring its designs to fruition and scale up its operations, the stock looks cheap right now. If it can't do so, the stock is completely overpriced. And there's no way to know which it'll be ... except to wait.

John Bromels has positions in Oklo. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.