A Reddit-induced short-squeezing frenzy sent Castor Maritime (NASDAQ:CTRM) stock to $2 per share in early February, the first time since the company listed in January 2020. But CTRM stock has fallen by 35% in the last month, leading to investors balking at its prospects.
As global trade continues to pick up steam, the international shipping company is in a decent position to take advantage of resurging trade, especially after the events of the last six months.
But the main question investors are asking is whether the stock can replicate its success earlier in the year.
On that end, there is not much evidence to suggest that the price will go up in the short run. Meme stocks typically have one quality that Redditors really like: a high short percentage. Its floating stock to its shares outstanding is 1.7%; not enough for millennials to get interested.
Overall, I tip my hat to the shipping company for using the situation to its advantage. It has raised a lot of money to finance its future operations and stem the cash burn, building up capacity for the eventual full-scale resumption of global trade.
For now, though, only investors interested in the long-term prospects should look into this one. If you like the company and its story, you should initiate a small position. However, as my colleagues have outlined in their excellent pieces, there is too little revenue to justify the market cap.
A Divorce Between Fundamentals and Valuation
Castor Maritime provides shipping transportation services through its ownership of oceangoing cargo vessels. Before 2020, the company was meandering along at a sluggish pace. At the end of 2019, the top line grew by a respectable 36%. However, net income came in at $1.1 million for the year versus $1.5 million the previous year.
In fact, despite a stressed outlook, 2020 was actually a better year for the company. In Q4, revenues rose 57% sequentially to end up on $4.4 million. It’s very respectable, and the figure makes sense since prospects for the dry bulk shipping sector are getting brighter. According to a new report by Stifel Research, cargo demand is expected to average 3.8% in 2021, exceeding an estimated fleet growth of 2.7% in the sector.
For the full year, revenues stood at $12.5 million compared to $6 million in 2019, a 108% year-over-year increase. A net loss of $1.8 million also makes sense. The company burned through a lot of cash in the last 12 months because of inactivity.
Still, due to the Reddit-induced enthusiasm, the company managed to raise a lot of cash. By the end of 2020, the total cash amounted to $9.4 million, a significant improvement from approximately $5 million, mainly due to equity issuances. At one point in February, CTRM stock was up more than 800%. Even after giving up most of those gains, the stock shows a 181% gain so far in 2021.
And management is not done yet.
The company has launched an offering to issue approximately 192.3 million of its common shares and warrants at an exercise price of 65 cents per share for gross proceeds of around $125 million.
Calmer Seas Await for CTRM Stock
It’s not like Castor Maritime is sitting on all that cash. It is aggressively buying new vessels to expand its fleet, with the number of ships in operation rising by nine in the year thus far, leading to a massive increase in the number of available days for sailing.
The company will have 15 ships in operation, with a capacity of 1.4 million deadweight tons. It will undoubtedly lead to more revenues moving forward. My colleague Faisal Humayun wrote, “Once all acquired vessels are in operation, the company is positioned for revenue in the range of $80 to $100 million.”
The assumption is reasonable. Castor Maritime has a track record of 90% utilization. Management has done well to establish itself during this crisis. In many ways, it mirrors the experiences of other meme stocks such as GameStop (NYSE:GME) and AMC Entertainment (NYSE:AMC), which have both utilized the situation to their advantage and transform extremely archaic business models.
Not a Long-Term Investment Yet
Castor Maritime has done well to expand its fleet amidst a very challenging year, with significant disruptions in global trade flows.
However, CTRM stock has not made the transition into a buy-and-hold investment. Revenues are still not enough to justify a market cap of $429.9 million. Hence, it can still be a good trading opportunity but nothing more than that for now.
If you find it tough charting CTRM stock, you can go ahead and trade CFDs to play the stock price’s upward and downward movement.
But the chances of another short squeeze are slim.
On the date of publication, Faizan Farooque did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Faizan Farooque is a contributing author for InvestorPlace.com and numerous other financial sites. Faizan has several years of experience analyzing the stock market and was a former data journalist at S&P Global Market Intelligence.