Is Westwater Resources (NASDAQ:WWR) a great indirect wager on the future of electric vehicles (EVs)? Or are speculators simply looking at it with rose colored glasses? At first glance, you may say the former. But — diving into the details of WWR stock — you have to go with the latter.
Why? Sure, graphite is an important basic material in the production of EV batteries. What’s more, in selling its legacy uranium business, the company has shifted most of its eggs into the graphite-mining basket. But — while that looks like a smart pivot towards the future on paper — in practice it’s no slam dunk.
However, that’s not the only red flag with WWR stock. Its long history of destroying shareholder value is another key reason to avoid this recent hot pick.
Many investors have realized this since mid-October. As a result, the stock has given much of its substantial gains back. After rallying from around $2 per share in late September to as high as $11.80 per share in early October, shares have pulled back nearly 59%.
And — with investor enthusiasm fading — you should expect further losses as we head into 2021.
Why Graphite Won’t Pay Off for WWR Stock
As I mentioned above, many investors rushed into Westwater Resources because of its indirect exposure to the EV megatrend. After all, graphite is an important material used in the production of EV batteries. But, having trend-backed companies as potential end-users hardly justifies bidding up this stock like it’s a “green wave” play.
Why? The devil is in the details.
Firstly, much of WWR’s bull case hinges on politics. As InvestorPlace contributor Vince Martin discussed Nov. 11, investors became hot for this stock after President Donald Trump signed an executive order calling for increased domestic mining of minerals like graphite. Right now, the United States is highly dependent on countries like China for these basic materials.
This paves the way for Westwater to develop its Coosa mine in Alabama, which is not yet active. However — with the more China-friendly Joe Biden administration setting up shop in January — it’s uncertain whether the soon-to-be former President’s order will remain intact.
Secondly, even if Trump’s order stands, the payoff for investors in WWR remains years away. Mining at the Coosa site won’t start until 2028. With this in mind, waiting seven years and change for the company to produce a financial return doesn’t look appealing.
And finally, it’s questionable whether the future will even bring an increase in demand for natural graphite. InvestorPlace contributor Larry Ramer detailed why that demand may dwindle, siting experts who note that synthetic graphite — which is more pure — will be the preferred choice for EV batteries going forward.
In short, there are multiple reasons why the company isn’t an inevitable win with its prospective mine. But this shaky bull case isn’t the only reason to steer clear of WWR stock. There’s another factor that investors should consider before speculating in this name.
Another Major Red Flag
Besides the aforementioned flaws in WWR stock, this company also has a history of destroying shareholder value.
Like many speculative mining plays, Westwater Resources hasn’t been a winner for long-term investors. Over the past five years, shares are down 98.45%. And as one Seeking Alpha commentator wrote last month, the company’s history of shareholder dilution and cash burn has left little for investors.
Sure, with a loose connection to the EV megatrend, you could argue that this time it’s different. But, based on its past performance, I’m doubtful that Westwater will break the habit. Instead of being on the cusp of something big, this name is simply capitalizing on investor enthusiasm for all things EV.
The end result? Likely not much different than what investors in WWR have seen in prior years.
Don’t Buy the Hype
There’s plenty of reason why the rise of EVs won’t translate into big success for Westwater Resources. And — even if natural graphite demand skyrockets as the shift to EVs accelerates — the payoff for this company won’t happen until late into this decade.
Investors have started to realize this, given how shares have pulled back over 50% since going parabolic in October. However, the selloff may not be over just yet. Shares probably haven’t completely cratered back to prior levels because of the continued interest in EV stocks.
But if the EV bubble finally does pop in 2021, don’t expect WWR stock to stay at today’s prices of around $4.80 per share. So, in my mind, the answer’s clear: stay away.
On the date of publication, Thomas Niel did not (either directly or indirectly) hold any positions in the securities mentioned in this article.
Thomas Niel, a contributor to InvestorPlace, has written single stock analysis since 2016.