While an intriguing potential solution to the growing energy dilemma, nuclear energy specialist NuScale Power (NYSE:SMR) has struggled to gain traction. On Friday, SMR stock took a brutal beating on the back of a short-seller report, which heavily cast doubt on NuScale’s ability to honor a major contract. While the company offers long-term upside potential, concerns present a focus on financial viability.
As a developer of small modular reactors or SMRs, NuScale may represent an important piece of the energy generation puzzle. Fundamentally, the underlying platform benefits from lower capital costs, which should theoretically attract investor dollars. Also, from a safety standpoint, lower cooling requirements means SMRs — which also feature shorter construction and installation times — may allow inland installation.
However, SMRs’ potential failed to instill belief in SMR stock, at least as far as Iceberg Research was concerned. On Thursday, the short seller blasted NuScale, which recently disclosed a big contract with blockchain datacenter service provider Standard Power. Iceberg estimates that the deal is worth about $37 billion.
Still, that failed to impress the bearish specialist, which noted that “[t]his contract has zero chance of being executed as Standard Power clearly does not have the means to support contracts of this size.” And while NuScale may have a more credible contract with the Utah Associated Municipal Power Systems, the energy firm is burning through cash, posing dilution risks.
SMR Stock Is Now Wildly Risky but Also Compelling
If that wasn’t enough to arouse suspicion over SMR stock, Iceberg also took issue with Standard Power’s management team. Specifically, the short seller called out Standard’s Managing Director Adam Swickle. Iceberg reported that Swickle was once a registered representative at Stratton Oakmont, which was one of the main subjects of the book and film The Wolf of Wall Street.
Further, the bearish research firm stated that in 2003, the U.S. Securities and Exchange Commission (SEC) went after Swickle “…for setting up a fake foreign exchange trading house and making off with investors’ cash.” Therefore, dependency on a company that hires people with a questionable professional record may impugn upon SMR stock.
On the financial side, NuScale presently carries no debt on its books. However, its free cash flow (FCF) sat at a loss of $150.94 million in 2022. On a trailing-12-month (TTM) basis, the red ink expanded to $169.3 million. Against a total cash holdings of $154.41 million, NuScale runs the risk of running out of money.
Still, the embattled energy enterprise enjoys a major potential catalyst. Per its website, NuScale is the only SMR design that has been approved by the U.S. Nuclear Regulatory Commission. Given the extraordinary energy density of nuclear fuel, NuScale cannot be completely ignored.
Why It Matters
According to data compiled by Statista, only three SMRs were operational in 2022. These facilities are located in Russia, China and India. However, given the competition in the geopolitical sphere, it’s possible that other nations will step up their SMR-related endeavors, which may help SMR stock in the long run.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
