Is Cameco Corp (CCJ) Set to Underperform? Analyzing the Factors Limiting Growth
Long-established in the Other Energy Sources industry, Cameco Corp (NYSE:CCJ) has enjoyed a stellar reputation. However, it has recently witnessed a daily loss of 3.22%, juxtaposed with a three-month change of 29.05%. Fresh insights from the GF Score hint at potential headwinds. Notably, its diminished rankings in financial strength, growth, and valuation suggest that the company might not live up to its historical performance. Join us as we dive deep into these pivotal metrics to unravel the evolving narrative of Cameco Corp.
What Is the GF Score?
The GF Score is a stock performance ranking system developed by GuruFocus using five aspects of valuation, which has been found to be closely correlated to the long-term performances of stocks by backtesting from 2006 to 2021. The stocks with a higher GF Score generally generate higher returns than those with a lower GF Score. Therefore, when picking stocks, investors should invest in companies with high GF Scores. The GF Score ranges from 0 to 100, with 100 as the highest rank.
Financial strength rank: 7/10
Profitability rank: 5/10
Growth rank: 3/10
GF Value rank: 1/10
Momentum rank: 6/10
Based on the above method, GuruFocus assigned Cameco Corp the GF Score of 62 out of 100, which signals poor future outperformance potential.
Understanding Cameco Corp Business
Cameco Corp, with a market cap of $17.24 billion, is one of the world's largest uranium producers. The flagship McArthur River mine in Saskatchewan accounts for roughly 50% of output in normal market conditions. Amid years of uranium price weakness, the company has reduced production, instead purchasing from the spot market to meet contracted deliveries. In the long term, Cameco has the ability to increase annual uranium production by restarting shut mines and investing in new ones. In addition to its large uranium mining business, Cameco operates uranium conversion and fabrication facilities.
Profitability Breakdown
Cameco Corp's low Profitability rank can also raise warning signals. The company's Operating Margin has declined over the past five years ((-75.98%)), as shown by the following data: 2018: 3.47; 2019: 5.06; 2020: -2.24; 2021: -7.54; 2022: 0.83. Additionally, Cameco Corp's Gross Margin has also declined over the past five years, as evidenced by the data: 2018: 14.14; 2019: 12.97; 2020: 5.91; 2021: 0.13; 2022: 12.49. This trend underscores the company's struggles to convert its revenue into profits.
Growth Prospects
A lack of significant growth is another area where Cameco Corp seems to falter, as evidenced by the company's low Growth rank. The company's revenue has declined by -0.8 per year over the past three years, which underperforms worse than 86.55% of 119 companies in the Other Energy Sources industry. Stagnating revenues may pose concerns in a fast-evolving market.
Over the past five years, Cameco Corp has witnessed a decline in its earnings before interest, taxes, depreciation, and amortization (EBITDA). The three-year growth rate is recorded at -13.3, while the five-year growth rate is at -6.4. These figures underscore potential challenges in the company's profitability.
Lastly, Cameco Corp predictability rank is just one star out of five, adding to investor uncertainty regarding revenue and earnings consistency.
Next Steps
Given the company's financial strength, profitability, and growth metrics, the GF Score highlights the firm's unparalleled position for potential underperformance. While Cameco Corp has a rich history and significant market presence, its current financial indicators suggest that it may struggle to maintain its past performance. Investors should consider these factors when making investment decisions.
GuruFocus Premium members can find more companies with strong GF Scores using the following screener link: GF Score Screen
This article first appeared on GuruFocus.
