Why Cameco Corporation Stock Dropped on Tuesday

Cameco Corporation (CCJ -1.82%) stock slipped 4.9% through 1:15 p.m. ET this afternoon, and it's not too hard to figure out why. Supply constraints and rising demand for uranium in late 2023 and early 2024 drove prices of the radioactive metal well past $100 a pound earlier this year.

But the rally faded in March, leading to a steep sell-off. Uranium prices have bounced around the mid-$80 range ever since -- and recently began to slide further.

Why are uranium prices falling?

Why is this happening? As NorthernMiner.com explained yesterday, "Last year's terrific run was driven by strong demand outlooks." In contrast, uranium's recent declines have been driven by a combination of rising supply and the effect of higher prices on demand.

Northern Miner blames a resumption of full production at Kazakhstan's Kazatomprom, new mining in Namibia and Australia, and greater production at Cameco itself. Globally, analysts now forecast a 4.1% annual supply growth in uranium from now through 2030, taking the edge off supply constraints and reducing the premium that buyers are willing to pay to secure the uranium they need.

Is Cameco stock a sell?

This isn't exactly a new phenomenon for investors in cyclical stocks, like mining companies. Low supply results in higher prices on the supply that's available, encouraging miners to increase production to capture excess profit. This extra production, however, increases supply and forces prices back down.

As I've pointed out previously, $60 per pound seems to be the magic number at which production of uranium inflects, encouraging more mining, growing supply, and reducing both prices and profits for companies like Cameco. With prices still in the $80s today, profits should come easy for Cameco until sufficient supply comes online to push prices back down.

With the company's stock up 70% over the past year, investors still have a window to exit the stock at a profit. But that window is starting to close. Cameco shares are still priced well over 130 times trailing earnings, so now might be a good time to sell.