Castor Maritime Poised to Trade Lower Toward Its Inherent Book Value

Castor Maritime (NASDAQ:CTRM) is a bulk shipping company that has raised a lot of capital recently as well as purchased a good number of bulk ships. The value of CTRM stock is hard to value right now until the company delivers more information.

A magnifying glass zooms in on the website for Castor Maritime (CTRM).
Source: Pavel Kapysh / Shutterstock.com

It is hard to know exactly how much cash the company presently has, or its exact book value per share (BVPS). There are indications that CTRM stock is trading too far above its BVPS now. Over time, the stock will float down much closer to its BVPS.

Determining CTRM’s Value

The company filed an F-3 registration statement and prospectus with the SEC on Jan. 26 indicating that it was raising $700 million in equity and debt capital. It said on Jan. 25 it had 509.262 million shares outstanding. But it has not yet said how much of the $700 million in common stock or debt the company has raised.

An analyst with Seeking Alpha said that the total was now more like 710 million shares, after warrants which are now likely exercised. But the problem with his analysis is that he does not know or state what he thinks the amount of cash the company presently has. The F-3 filing said it had $38.1 million as of Sept. 30, 2020.

But at the time, the company had six ships. As of March 19, it purchased eight, so that it has 14 ships, on a fully delivered basis. However, we don’t know exactly how much cash the company has left after these purchases. That is because we don’t know how much cash of the $700 million in common stock and debt the company has raised. And we don’t know the exact amount of common shares that are now outstanding. These are needed in order to calculate the book value per share.

The Seeking Alpha analyst argues that the BVPS is exactly 25 cents per share now. But he does not show his calculations clearly, including the amount of cash he thinks the company raised and in what securities form.

Potential BVPS Calculations

For discussion, let’s assume that Castor Maritime may have raised half of the $700 million in common equity at $1 per share. Let’s also assume that it paid $17 million on average for the eight new ships, or $136 million.

That would mean the company has about $252 million in cash left over and 14 ships worth about $238 million. But now it has 1,060 million shares outstanding (i.e., 710 million plus 350 million shares issued). Therefore, its BVPS now is $490 million (before any debt) divided by 1,060 million shares or 46.2 cents per share.

As of Sept. 30, the company said its total debt was $19 million. Therefore the book value would be $471 million, and its pro forma BVPS was 44.4 cents per share.

But what if the company simply borrowed half of the $136 million (or $68 million) and raised just $200 million in equity at $1.10 per share? That would give it 892 million shares outstanding, cash remaining of $170 million, ships worth $238 million – for total assets of $408 million. As it now has debt of $87 million, its book value would be $321 million, but its BVPS would be 36 cents per share. This is lower than in the earlier scenario, even though the company raised equity at a higher price.

What to Do With CTRM Stock

So you can see that without further details, we won’t know the exact BVPS. But our scenarios lead us to believe that it is somewhere in the range between 25 cents per share to maybe 45 cents per share.

Keep in mind I could be way off on a number of factors, including the value of the ships, current debt and current cash. But this is how you estimate a value of a company. Take what you have and make an estimate.

Given that CTRM stock now trades for just less than $1 per share, it is still at least three to four times higher than its estimated book value. That implies that, short of stellar profits from its shipping operations, the stock is likely to fall. I suspect the drop will be at least 50% from here just to get in range of its BVPS. So watch out below, stay away from this stock for now, at least until there is better information on its BVPS.

On the date of publication, Mark R. Hake did not hold a long or short position in any of the securities in this article.

Mark Hake writes about personal finance on mrhake.medium.com and runs the Total Yield Value Guide which you can review here.

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