NuScale Power Trades Below $10. Bargain or Value Trap?

Over the past three years, shares of NuScale Power (NYSE: SMR) have risen as high as $52 and been as low as $2. As of this writing, they are trading around $8.75, well below $10. That's a lot of price volatility in a very short period of time. With the stock so far off its highs, however, is now a good time to buy it? It depends.

What does NuScale Power do?

NuScale Power is an upstart in the nuclear power industry. It is attempting to build a business around small modular nuclear reactors (SMRs). The plan is to build SMRs in a factory setting, allowing the company to benefit from an assembly line approach to keep costs low, speed up production, and ensure consistent product quality. Once built, the relatively small reactors could be transported to where they are needed, including stringing reactors together to create a larger power plant. In theory, this is an attractive idea.

Image source: Getty Images.

The problem is that NuScale Power has yet to build and sell its first commercial reactor. It has an approved reactor plan, but no firm SMR sales. RoPower, a Romanian power company, has approved a plan to use six NuScale SMRs in a reactor it hopes to build, but it still needs to secure funding for the project. And NuScale is working with ENTRA1 Energy and the Tennessee Valley Authority about potentially using NuScale SMRs, but there's no sale on the horizon just yet. NuScale is building out its manufacturing capabilities to hit the ground running, but it can't do much until it has inked its first sale.

Investor sentiment and newsflow have been the main drivers of the stock's rollercoaster-like price swings. NuScale's stock rallied strongly when investors were hot on nuclear power, but it has fallen back down to earth as that enthusiasm has cooled. The lack of a firm sale, meanwhile, has left the shares languishing and drifting lower. That said, Wall Street's interest in the stock is likely to be renewed when NuScale announces it has its first customer.

Don't get too excited, NuScale still has a lot of work ahead of it

Investors need to understand the risks they are taking when they buy NuScale Power. It is a money-losing start-up in a capital-intensive industry that faces strict government regulation. And a signed contract is really just the starting point, since NuScale then needs to build and deliver the reactors, proving its manufacturing capabilities and the reliability of its product.

It is hard to describe NuScale as either a bargain or a value here. Only the most aggressive investors should probably even consider owning NuScale. Buying this stock is, at its core, a high-risk bet on a company with a very limited track record.

Reuben Gregg Brewer has no position in any of the stocks mentioned. The Motley Fool recommends NuScale Power. The Motley Fool has a disclosure policy.