What a brutal six months it’s been for Centrus Energy. The stock has dropped 33.6% and now trades at $165.40, rattling many shareholders. This may have investors wondering how to approach the situation.
Is now the time to buy Centrus Energy, or should you be careful about including it in your portfolio? Check out our in-depth research report to see what our analysts have to say, it’s free.
Why Do We Think Centrus Energy Will Underperform?
Despite the more favorable entry price, we don’t have much confidence in Centrus Energy. Here are three reasons you should be careful with LEU, plus one stock we’d rather own.
1. Fewer Distribution Channels Limit Its Ceiling
In Energy, scale separates fragile single-asset producers from platform-style businesses that generate revenue across entire basins and infrastructure networks.
Centrus Energy’s $452.3 million of revenue in the last year is pretty small for the industry, suggesting the company is a subscale business in an industry where scale matters.
2. Low Gross Margin Reveals Weak Structural Profitability
In a single quarter or year, gross margins in the sector can swing wildly due to commodity prices, hedging, or changes in labor costs. Over a multi-year period across different points in the cycle, gross margin differences can signal whether a company is a structurally-advantaged producer (“rock” quality, takeaway, operating costs) or not.
Centrus Energy, which averaged 32.5% gross margin over the last five years, exhibited bottom-tier unit economics in the sector. It means the company will struggle at higher commodity prices than peers with better gross margins.
3. Shrinking EBITDA Margin
Adjusted EBITDA margin captures the true operating profitability of an energy producer by removing accounting noise around depletion and capitalized drilling costs. It reveals how much cash the asset base generates before capital structure and reinvestment requirements shape reported earnings.
Looking at the trend in its profitability, Centrus Energy’s EBITDA margin decreased by 38.7 percentage points over the last year. This raises questions about the company’s expense base because its revenue growth should have given it leverage on its fixed costs, resulting in better economies of scale and profitability. Centrus Energy’s performance was poor no matter how you look at it - it shows that costs were rising and it couldn’t pass them onto its customers. Its EBITDA margin for the trailing 12 months was 11.7%.
Final Judgment
We cheer for all companies serving everyday consumers, but in the case of Centrus Energy, we’ll be cheering from the sidelines. After the recent drawdown, the stock trades at 38.4× forward P/E (or $165.40 per share). This multiple tells us a lot of good news is priced in - you can find more timely opportunities elsewhere. We’d suggest looking at a safe-and-steady industrials business benefiting from an upgrade cycle.
Stocks We Would Buy Instead of Centrus Energy
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