Shares of Cameco (CCJ -2.01%) have been on a rocket ride over the past three months or so, gaining a massive 50%-plus in a very short period of time. Is that a warning sign that Wall Street is baking in overly optimistic expectations or is the miner set to see a material improvement in its business over the coming years? There's a lot to unpack before you run out and buy Cameco stock right now.

What does Cameco do?

At its core, Cameco is a miner. Mining is a very capital-intensive business, given the cost of finding good places to build a mine, getting the approval to build a mine, building and operating a mine, and then, ultimately, returning the mine site back to its original state once the mine is closed. Complicating things a great deal is the fact that most miners produce commodity products, so their revenue and earnings are heavily impacted by often volatile commodity prices.

Image source: Getty Images.

Cameco is no different from other miners in this regard. But the uranium it mines does set it apart from the pack in some important ways. For starters, uranium is the fuel that powers nuclear power plants. So Cameco's fortunes are tightly tied to the nuclear power industry's ups and downs. Given the high-profile nature of nuclear plant disasters, that can be a very negative thing at times. And the bad times tend to linger until the fear over the risks of nuclear power disasters subsides.

That said, nuclear power happens to produce energy without producing greenhouse gases. In other words, it is a source of clean energy. Nuclear power is also capable of running at full nameplate capacity on an ongoing basis, making it a great complement to intermittent power sources like solar and wind. Given the ongoing shift in the world toward cleaner power options, nuclear power is seeing something of a renaissance. (The fact that the last nuclear power plant meltdown happened in 2011, quite some time ago at this point, is also a big help.)

Cameco tries hard to be reliable

At the same time, Cameco can't avoid the fact that the price of the commodity it sells has a major impact on the way Wall Street views its business. With nuclear power seen as an increasingly important power source, uranium prices have benefited. And so, too, has Cameco's stock price. The tie between uranium prices and Cameco's stock price will likely never change, so a significant drop in uranium prices would lead to a big drop in Cameco's stock price, too.

If you buy Cameco stock today you need to believe that the nuclear power industry is set to expand over the long term. And, thus, demand for uranium will remain strong over the long term and keep uranium prices high. If you don't go in with that belief you could be let down over the short term as commodity prices wax and wane, just like any other commodity, over shorter periods of time.

CCJ data by YCharts

However, there is something important about Cameco's business model that is worth highlighting. It doesn't sell uranium at the spot price, it signs long-term supply contracts. This helps to soften the blow from uranium price declines, though it can also limit the upside when uranium prices rise.

And Cameco recently bought a non-controlling stake in Westinghouse, a service provider to the nuclear power industry. The revenues this business generates should be more consistent over time than uranium prices. In other words, Cameco is doing what it can to ensure its business is resilient to the typical ups and downs of a commodity business.

Think carefully before buying Cameco

The truth is, Cameco probably won't be a great fit for most investors. You can get indirect exposure to nuclear power via an investment in a reliable dividend-paying utility like Southern that will expose you to much less risk.

However, if you think nuclear power is set to grow in the years ahead, Cameco is a solid "pick-and-shovel" play on the sector. Just go in knowing that volatility is the norm, with 50% price increases coming along with the risk of similar price drawdowns.