As the green energy conversation continues and as politicians are pressed to come up with answers for the rising energy demand, the option for nuclear energy continues to reappear. As true as that is, this is an opportunity to understand a common stock screening tool knows as “price to book”. This common indicator tells us the ratio of the price compared to the value of the assets owned by the company. The idea is that the company should be worth at least as much as all their assets minus their debt. Hopefully, we could add to that number some future income, but in the case of Fission Uranium, it is hard to know when they will generate significant sales in the near term. Is it enough to look simply at the book value or tangible book value? The simple answer is “no.” There is always a macroeconomic wind filling the sails of each sector, perhaps pushing them forward or blowing against them. How strongly will the winds blow into the sails of the Uranium sector? What impact will the US infrastructure bill have (the answer is minimal once we see what is inside the 2021 infrastructure bill). But Uranium is much larger than just any single country. It is unlikely that expensive clean energy will become dominant over other, more economical “dirty” energy in the developing world.
Other factors included in a buy/hold/sell decision include share dilution, trends in expenses, trends in increases in capital expenditure, changes in tax rates, and changes in the price of the commodity. Additionally we see wild swings in profitability measured in ROI, ROA, and ROE among competitors in the Uranium space. Taken together we see that price to book or price to tangible book is helpful when considered in light of future earnings expectations. For companies without sales, price to book is very helpful for estimating the minimal value of a company. For swing traders, Price to Book seems to provide a rational estimate for the liquidation value of the company, but as we see for Fission Uranium, the share price can drop dramatically below Price to Book, making it a poor estimate for a buy signal when used alone.
