On Thursday I established a small position in Uranium Energy Corp (URME.OB) at $4.05. This is a company that I’ve traded successfully in the past, and I’ve been watching from the sidelines in recent weeks as the stock has been pounded back from the $9 mark on worries about groundwater pollution problems at its Texas operations and management credibility. This stock continues to be clouded by these issues, but the stock's price is now accounting for these risks.
Over the past few months, there has been a steady hum of negative buzz surrounding the company and its management that has derailed the stock, but all of this negative buzz has so far amounted to nothing substantial. The company’s drilling program has continued unabated and still appears to be on track to mine at least five million pounds of uranium from its Goliad County (Texas) operations. URME recently provided an update that the Texas Railroad Commission had concluded that their drilling operations had not caused groundwater pollution, providing a bit of good news on a story that had been seriously clouded for some time. The stock hasn’t turned around in spite of the news, and negative sentiment remains here. However, this looks to be a case of excessive bad news dragging down sentiment, and a bit of positive news could certainly turn things around for URME.
From a technical standpoint, volume has been accelerating as the stock has moved downward over the past few weeks. Most technicians would probably note this as bearish, but high volume selling also tends to be seen at tops and bottoms as a result of capitulation buying and selling. It appears to me that I’ve called that bottom a bit early, but it still looks to me like the last three trading days (including Friday) show some evidence of capitulation selling, and we should be getting rid of weak hands here at what represents an attractive valuation relative to the company’s reserves ($150 million market cap with 5 million lbs minimum estimated to be at their Goliad properties).
Finally, there has been modest insider buying at URME over the past month, indicating that insiders have been willing to step up and buy at these lower prices. While this is not a foolproof indicator, it certainly must be counted as reinforcing the bullish case on URME.
Overall, URME’s stock has priced some negative rumors that remain unsubstantiated, and now represents a nice value play (which is hard to come by in the uranium sector). The negative press that has swirled around this company may still have some bite (which is why I have only taken up a small position in the stock), but the bull case looks quite compelling given the cheap valuation and insider buying of URME in recent weeks. If the company can produce some results to change the overwhelmingly negative sentiment surrounding this company, I believe that URME could easily retake $5 and possibly move back above $200 million in market cap.
URME 1-yr chart