NuScale Power (NYSE: SMR) is an industrial company that is still early on but whose share price has skyrocketed in 2024. Shares are up nearly 270% this year, yet the company generated just $1 million in revenue last quarter. I’ll dive into what NuScale does and what I ultimately think about the stock.

NuScale: A First Mover in Small Modular Reactors

NuScale is a nuclear power company, but it approaches nuclear power in a nontraditional way. The company specializes in making Small Modular Reactors (SMRs), which are much smaller than traditional ones. They produce less energy but can theoretically be built faster.

So far, there are few SMRs operating worldwide. One in China took around nine years to finish construction. China expects to complete another project in 2026, with a construction time of around five years. The most recently built large nuclear reactors in the US, the VOGTLE 3 and 4, took just over 10 years to construct.

SMRs may have many significant advantages over large reactors. First, companies can construct them closer to where the energy is needed. This decreases the amount of energy lost in transfer because the electricity doesn’t have to travel as far from its generation point.

It also allows companies to expand the network of reactors over time. This can help meet the needs of certain regions more immediately. However, the construction time data we have so far cast doubt on exactly how much faster companies can build modular reactors.

NuScale is currently approved by the Nuclear Regulatory Commission (NRC) to build its VOYGR-12 power plants. These consist of up to 12 of the company’s NuScale Power Modules (NPMs), each of which can generate 50 megawatts of electricity (MWe). For context, the VOGTEL reactors can each generate around 1,215 MWe. So, an NPM generates around 4% of the power of new large reactors.

Opportunity Remains Despite a Massive Hiccup

In 2020, NuScale became the first company to achieve Standard Design Approval (SDA) from the NRC. This means that VOYGR-12 plants can begin construction without needing to be approved every time the company gets a deal, speeding up the company's ability to scale its production.

However, NuScale has faced significant roadblocks in getting any plants operational. In late 2023, the company announced that the Utah Associated Municipal Power Systems (UAMPS) terminated its agreement with the firm to build a plant. It was supposed to be NuScale’s first operational plant.

According to M.V. Ramana at the University of British Columbia, Vancouver, the estimated cost of the plant went from $3 billion to $9.3 billion. This resulted in the UAMPS exercising its right to exit the project. On a per MWe basis, the new estimated cost of the project was 250% more than the initial cost of the VOGTLE project.

Many believe that nuclear energy must be part of the equation to meet the energy needs of the future and transition to a net-zero economy. This is especially true due to the rise of GenAI and the massive amount of electricity that data centers require to function.

Data center companies want to use renewable power, like nuclear, to run their facilities. It reduces emissions, and they prefer it over wind and solar, which are less reliable. This is great for companies like NuScale and is a big reason why its stock price has soared despite its low revenue.

Analyst Price Targets and NuScale’s Valuation

On average, Wall Street price targets signal that NuScale is currently somewhat overvalued. The average price target of $9.69 implies a 22% downside potential. However, the most recently updated price target from Craig-Hallum signals that shares could rise 31% from their current level.

Although the market opportunity for NuScale is massive, it's hard not to be alarmed by the company’s valuation. The stock is valued at more than 43 times its projected sales over the next twelve months.

This measure is also known as the company’s forward price-to-sales (P/S) ratio. It's used instead of the forward price to earnings (P/E) ratio because NuScale has negative earnings. The 43x forward P/S figure is higher than 98% of all publicly traded companies worldwide.

If NuScale succeeds, it will have a huge opportunity. However, its past implementation failures are concerning. The overall uncertainty around the economics of small nuclear reactors makes paying 43x an unsavory proposition for my taste.