The power of NuScale is great. Here’s why you shouldn’t buy it.

NuScale Power (SMR 12.17%) is at the top of the nuclear power sector. It’s doing great things and making important progress toward its goal of mass-producing small-scale modular nuclear reactors. In a world that is increasingly looking to carbon-free energy sources, it is well positioned for a bright future. But it won’t be right for every investor. Here’s why you might want to buy the stock, and why you might not you want to buy it

NuScale is (slowly) moving towards the nuclear future

Today, nuclear reactors are huge infrastructure assets that cost huge amounts of money to build and years of effort to operate. NuScale Power is working to change that inefficient model by offering small, modular reactors that would be built in a factory and then delivered to where they are needed.

If one reactor is not enough, they can be connected to create a larger reactor. The end result is a less expensive and more flexible nuclear power supply with the added benefit of safer operation. That’s why investors like stocks.

Image source: Getty Images.

Adding to the appeal here is a balance sheet with zero debt and $136 million in cash. In other words, they are working from a strong financial position. NuScale Power’s largest shareholder is also Fluorine (FLR 2.21%)a large construction company.

Clearly, Fluor has its own reasons for supporting NuScale, such as supporting the growth of a new market (small-scale nuclear power plant construction), but it means that NuScale has a powerful parent to help it. And that’s coming up right now, as a project from Fluor will help add revenue to NuScale’s income statement, helping the upstart nuclear power company pay for its own product development plans.

There are indeed some good reasons to like the future outlook for NuScale’s power, including the fact that, as management likes to point out, it’s “the only US Nuclear Regulatory Commission-certified SMR.” So basically it has a competitive advantage right now.

NuScale Power comes with some big risks

Despite the positives, NuScale Power won’t be right for every investor. In fact, only aggressive types should really look at the stock today. There are lots of reasons.

For starters, NuScale Power’s product plans are approved by US regulators, but not fully approved to the point where it can start building and selling units. So there is more work to do before NuScale Power has a product to sell. And while it has made a tentative deal to sell its first units, it can’t actually do that yet. They have to spend even more money trying to get final government approval to start building and shipping a product.

That, in turn, means more red ink. NuScale Power is basically still in startup mode, so it’s not unusual for more money to go out the door than come in. The income from working with Fluor will help, but the income statement is likely to look ugly for years to come. That’s because he’ll need to step up his production skills even after he gets all the approvals he needs. All in all, NuScale Power has a great story, but that story is still in its early chapters.

SMR data by YCharts.

NuScale Power is an acquired taste

To highlight the risks here, it helps to look at the share price. Over the past year, the stock has gone from a low of about $2 a share to a high of just over $15, and currently sits at about $7. If you can’t deal with such price fluctuations, you definitely don’t want to own this nuclear power start-up.

That said, investors with a high risk tolerance may be interested in NuScale Energy, given that it has accomplished a lot on its way to producing small-scale modular nuclear reactors. But for most investors, the risks are probably too high right now to justify hitting the buy button.