Down 84% From Its High, Is NuScale Power a Bargain Hiding in Plain Sight?

Last October, shares of NuScale Power (NYSE: SMR) hit an all-time high of about $57. Today, shares trade at just under $10, representing a massive 84% decline.

What happened? Nothing that an 84% decline might suggest: no bankruptcy, no regulatory complications, no nuclear accidents (thank goodness). The drawback was more likely a sign that investors had lost patience with an overvalued nuclear stock with no reactor operating in the real world, and no firm first customer.

Funny thing is, NuScale actually looks better positioned as a company than it did at the height of its AI-nuclear boom. Investors looking for a value may want to reconsider NuScale, especially with a multi-state project moving closer to a signed deal.

The 6-gigawatt elephant in the room

If you're new to NuScale, here's a quick catch-up: The company wants to build and sell small modular reactors (SMRs), which are essentially compact nuclear power plants designed to generate carbon-free electricity from a much smaller physical footprint than your traditional nuclear facility. It is currently the only company in the U.S. with an NRC-approved SMR design, but it has not yet built a reactor for a customer.

To that end, NuScale has partnered with ENTRA1 Energy, which essentially acts as the developer for projects that use its technology. And ENTRA1 has potentially landed one of the biggest SMR projects ever conceived: 6 gigawatts (GW) of NuScale-powered nuclear capacity for the Tennessee Valley Authority (TVA), potentially involving 72 of its modules.

A definitive power purchase agreement (PPA) has not been signed; however, TVA and ENTRA1 have inked a nonbinding agreement to work on the project together. They have also identified four prospective sites, have selected at least one for a plant, and are currently evaluating the others.

Image source: The Motley Fool.

The opportunity is huge, but so is the bill

So what could this project actually be worth to NuScale?

Well, it all depends on how much revenue NuScale would eventually generate, which could be enormous or utterly disappointing. We know, for instance, that NuScale managed to eke out about $63 million in licensing and engineering revenue from a much smaller six-module project in Romania. TVA's project should be bigger, though exactly how much more NuScale would earn is anyone's guess.

That early-stage work, though, would just be the appetizer. The bigger opportunity would come from selling 72 modules to ENTRA1. There's no sticker price on those modules just yet, and I'm not going to pretend I can pull a sensible estimate out of thin air.

But here's the rub: NuScale may have to spend a lot of money before it makes any. Its deal with ENTRA1 requires additional milestone payments, including a potentially huge one if a binding PPA gets signed. It's already incurred about $507 million for the first milestone, and a PPA covering 72 modules could trigger roughly another $1.2 billion more.

Is NuScale a bargain today?

I wouldn't go so far as to call NuScale a bargain -- not yet. With the stock under $10, investors are paying less for NuScale than they were last autumn, even though it has a clearer path to commercialization. Still, until TVA turns into a binding agreement -- and that agreement into revenue -- this stock is no less speculative than it was at its height.

At today's price, I find NuScale more interesting than last year, but I wouldn't call it a value stock in hiding. Risk-tolerant investors might want to consider it for its nuclear potential, but value investors should definitely not confuse it with a beaten-down stock with a proven business.

Steven Porrello has no position in any of the stocks mentioned. The Motley Fool recommends NuScale Power. The Motley Fool has a disclosure policy.