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Why Speculators Need to Pay Attention to NuScale Power’s (SMR) Unusual Options Volume

Barchart - Tue May 2, 2023

With bond yields moving higher amid news of the third U.S. bank to fail this year, now may not be the most ideal time to speculate. However, should you find yourself flush with pocket change collected under the sofa, you may want to consider NuScale Power (SMR). Specializing in the field of small modular reactors – or SMRs, hence the ticker symbol – NuScale may spark a paradigm shift in the broader energy ecosystem. If so, SMR stock could swing dramatically higher.

To be sure, the narrative isn’t an easy one to swallow. Financially, while NuScale benefits from strong growth and a robust balance sheet, it has a while to achieve consistent profitability. Further, the company must tackle a product evangelism obstacle given the not-so-pleasant reputation of nuclear power. Finally, SMR stock has been all over the map since its public market debut.

Nevertheless, with the potential to shape the future energy infrastructure framework, NuScale brings plenty of substance to the table. Below are a few pointers to consider.

SMR Presents High Risks But Also High Reward Potential

At first glance, some analysts have advised their viewership to avoid SMR stock. For example, warns about the security’s poor price action despite its significant revenue growth. Unfortunately, NuScale’s bottom line remains in the red, posing concerns for prospective investors, especially in the present financial environment.

Another obvious concern centers on how SMR stock entered the public arena. Last year, NuScale completed a merger with Spring Valley Acquisition Corp., a special purpose acquisition company or SPAC. As the New York Times pointed out last year, SPACs were once all the rage. Now, many of the heavily hyped entities have crumbled ignominiously.

At $8.54, SMR stock doesn’t trade horrendously below its initial offering price of $10 per share. However, at its closing peak, the security did hit more than $15.

Still, not everything about NuScale concerns fluttering red flags. Fundamentally, NuScale stands unique among energy players because it’s the world’s first and only publicly traded provider of transformational small modular nuclear reactor technology, per one of the company’s press releases. Should SMRs take off, NuScale stands poised for dramatic growth.

Also, the smart money appears to have caught on as evidenced by rumblings in Barchart’s screener for unusual stock options volume. Specifically, total volume hit 4,144 contracts against an open interest reading of 34,532. The delta between the Monday session volume and the one-month average volume came out to 625.74%.

Drilling down, call volume pinged at 4,009 contracts while put volume only reached 135. This pairing yielded a put/call volume ratio of 0.03, on paper favoring the bulls. Looking ahead, speculating investors should pay close attention to potential catalysts.

Shifting Economic Tides Requires an Energy Rethink

Early last month when OPEC+ imposed a surprise production cut, the headlines naturally focused on the implications for oil prices. However, the cartel of oil-producing nations also sent the Federal Reserve a strong message. Basically, the agency isn’t the only one that can substantively influence the trajectory of the dollar.

At the same time, the U.S. is attempting to wean off hydrocarbon dependency both for environmental and geopolitical reasons. Obviously, the threat of climate change requires a worldwide rethink on how societies shepherd their natural resources. Also, by diverting to alternative sources of energy, the U.S. and the west can blunt the impact and leverage of adversarial nations like Russia.

However, all this talk about going green and being sustainable runs into a sharp reality check: renewable energy sources like wind and solar are among the least reliable energy sources when stacked against capacity factor. Put simply, when the wind stops blowing and the sun stops shining, wind turbines and solar panels become rather useless.

On the other hand, nuclear energy has the highest capacity factor (92.5%) of all other energy sources and it’s not even close. In other words, nuclear power plants are producing maximum power more than 92% of the time during the year.

Now, the beauty of SMRs is that they’re smaller and can be integrated in areas previously inaccessible to traditional nuclear powerplants. Combined with their advanced safety features, SMRs can be developed closer to the source of energy demand, thus sparking tremendous efficiencies.

Better yet, if we’re all going to switch to electric vehicles, renewable energy infrastructures’ intermittent nature prevents these green solutions from being the exclusive answer. Thus, SMR stock could be intriguing as the underlying enterprise offers compelling relevancies.

Worth a Shot for Gamblers

To emphasize again, SMR stock is incredibly risky. According to the Barchart Technical Opinion indicator, shares rate as 100% sell. That’s not exactly a confidence booster. At the same time, Wall Street analysts peg SMR as a consensus moderate buy. Fundamentally, I believe this to be the case because NuScale stands unique and offers a desperately needed service. It’s just that the market hasn’t quite caught onto it yet.

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On the date of publication, Josh Enomoto did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.

Provided Content: Content provided by Barchart. The Globe and Mail was not involved, and material was not reviewed prior to publication.

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