Index additions put X-Energy in front of more institutional investors

X-Energy (XE) has been added to multiple Russell equity and value indices, a shift that could increase the stock’s visibility with index funds and institutional investors that track these benchmarks.

These index inclusions arrive after a challenging month for the stock, with shares down 24.4% while the company continues regulatory work on its Xe-100 small modular reactor and TRISO-X fuel business.

Even with the recent index additions and interest from institutional buyers, X-Energy’s share price performance has been weak this year. The 30 day share price return is down 24.35% and the year to date share price return is down 41.92%, which suggests that recent momentum has faded, despite a 1 day share price return of 2.54% and a last close of US$16.96.

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X-Energy now sits at the intersection of fresh index demand and a share price that has pulled back hard in recent months. Is most of the rerating already in the rearview mirror, or is meaningful upside still in front of the stock?

Preferred Price-to-Sales of 41.6x: Is it justified?

X-Energy is currently valued at a P/S ratio of 41.6x, based on a last close of $16.96, which points to a rich valuation relative to revenue.

The P/S ratio compares the company’s market value to its revenue and is often used when a business is unprofitable, as is the case with X-Energy. In this situation, investors are effectively paying a high multiple of current sales for exposure to its Xe-100 reactor and TRISO-X fuel operations while the company continues to report losses.

Compared with the US Electrical industry average P/S of 2.6x and a peer average of 6x, X-Energy trades at a much higher level. This suggests the market is pricing in far stronger prospects than those implied for the wider group. Without a fair ratio to benchmark where this multiple could settle, the current premium appears substantial rather than moderate.

Result: Price-to-Sales of 41.6x (OVERVALUED)

However, X-Energy still faces clear risks, including ongoing losses of $545.783m and the possibility that expectations embedded in its 41.6x P/S ratio may prove too optimistic.

Another view on X-Energy’s valuation

The earlier discussion focused on X-Energy’s 41.6x P/S ratio compared with industry and peer levels. A second lens is our DCF model, which estimates fair value at $12.01 per share, which implies that the current $16.96 price is higher than that estimate of fair value.

That difference leaves you weighing up whether the market is appropriately rewarding X-Energy’s growth story or instead pricing in cash flows that may be ahead of the company’s modeled projections.

Simply Wall St performs a discounted cash flow (DCF) on every stock in the world every day (check out X-Energy for example). We show the entire calculation in full. You can track the result in your watchlist or portfolio and be alerted when this changes, or use our stock screener to discover 44 high quality undervalued stocks. If you save a screener we even alert you when new companies match - so you never miss a potential opportunity.

Next Steps

With mixed signals around X-Energy’s valuation and outlook, does the balance of risks and potential rewards feel clear enough to you right now? Take a moment to review the data, move quickly if you need to, and weigh up the 2 key rewards and 3 important warning signs

Looking for more ideas beyond X-Energy?

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• Target durable businesses with healthier finances by scanning the solid balance sheet and fundamentals stocks screener (47 results) before the next round of news shifts attention again.
• Zero in on potential mispricings by reviewing the 44 high quality undervalued stocks so you are not relying only on headline stories for opportunities.
• Spot opportunities that others may be overlooking by checking the screener containing 19 high quality undiscovered gems while those stocks are still off most investors’ radar.

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.