Exposure to Castor Maritime (NASDAQ:CTRM) stock has been no less than a roller-coaster ride for investors. At the end of fiscal year 2020, the stock was trading at 19 cents.
By the second week of February, the stock touched a high of $1.95. A big correction has followed and CTRM stock currently trades at around $0.45.
I believe that the correction presents a good medium-term opportunity for investors. It’s important to understand the reason for the correction.
An obvious reason is profit booking after the massive rally, which was partly speculative. Further, Castor Maritime had a long due equity dilution coming. The company finally raised $125 million through an offering of 192.3 million common shares.
While CTRM stock has declined, the fund-raising positions the company for growth. Let’s talk about the bullish triggers from a fundamental perspective.
A Closer Look at CTRM Stock
As a quick overview, Castor Maritime is involved in the transportation of dry bulk cargo globally. It goes without saying that the company’s growth largely depends on global economic activity.
According to the International Monetary Fund, the global economy contracted by 3.5% last year. For the current year, GDP growth is likely at 5.5%. Additionally, the growth forecast is at 4.2% for FY2022. Therefore, the world economy is crawling back to normalcy. This is likely to be positive for the dry bulk industry.
The dry bulk shipping market is also expected to grow at a CAGR of 2.6% in the next five years. By FY2026, the industry size is estimated at $5.1 billion. With steady growth, Castor Maritime looks well-positioned to benefit from aggressive fleet expansion.
Further, according to the International Chamber of Shipping, the industry is responsible for 90% of world trade. Even with relatively muted economic growth, the dry bulk industry is likely to report decent utilization.
Fleet Acquisition and Revenue Growth
From a financial perspective, Castor Maritime reported cash of $9.4 million as of December 2020. In January, the company announced $26 million fundraising from equity offering and $15.3 million debt financing. Additionally, the company raised $125 million this month. Overall, the total liquidity buffer stands at $175 million.
With this, the company is positioned to pursue aggressive fleet acquisition. For year-to-date fiscal 2021, the company has already acquired nine vessels. When all the vessels are delivered, the company will have a fleet of 15 vessels with a capacity of 1.4 million dwt.
It’s also worth noting that the acquired vessels have been contracted for day rates that range from $18,000 to $25,000. Assuming a day rate of $20,000 for one vessel and a capacity utilization of 75%, the annual revenue is likely at $5.5 million.
For a fleet of 15 vessels, this would imply an annual revenue of $82.5 million. Once all acquired vessels are in operation, the company is positioned for revenue in the range of $80 to $100 million.
It’s worth noting that for FY2020, the company reported revenue of $12.5 million. The above revenue estimate is likely once the entire fleet is operational. In other words, a strong top-line bump-up is likely in the year and in FY2022. This is likely to take CTRM stock higher.
Another point to note is that the current contracts are relatively short-term. However, the industry does offer long-term contracts. If the company’s fleet does get multi-year contracts, it will translate into clear revenue and cash flow visibility.
Concluding Views
CTRM stock has meaningfully corrected after a big equity dilution. However, the company is on a fleet acquisition spree and renewed stock upside is likely once revenue growth accelerates.
Further, internal cash flows will allow Castor Maritime to expand the fleet beyond FY2022. With a steady industry growth outlook, the stock looks attractive at current levels.
Therefore, investors can ignore near-term volatility and gradually accumulate the stock. I would not be surprised if CTRM stock is back to highs of $1.95 over the next 12-18 months.
On the date of publication, Faisal Humayun did not have (either directly or indirectly) any positions in any of the securities mentioned in this article.
Faisal Humayun is a senior research analyst with 12 years of industry experience in the field of credit research, equity research and financial modeling. Faisal has authored over 1,500 stock specific articles with focus on the technology, energy and commodities sector.
