Reddit investors have by and large cashed out of Castor Maritime (NASDAQ:CTRM) stock. Relative to the value of its assets, shares remain richly priced. Betting against this highly volatile shipping play may not be worth the risk at today’s prices, though.
While enthusiasm has left the room, the “story” behind this stock remains the same. In other words, this remains more of a gamble than an investment. Especially given the risk that this “cheap” stock could get even cheaper.
Some may see it now, trading for 45 cents per share, and think that another rally is due, but there’s a way for shares to take another tremendous drop from here.
On the other hand, there may be a pathway for it to rally once more. More news of it acquiring vessels may convince some the company is on its way to materially improved results. That may not push shares back to their 52-week high of $1.95 per share, but, a partial rebound (say, to around $1 per share) could be possible.
So what’s the best move? Risk-hungry investors may find it to be an opportunity with short-term rebound potential. Given the lackluster long-term returns seen with dry bulk shipping stocks, though, exercise some caution.
CTRM Stock: How Shares Could Drop Another 90%
At first glance, Castor Maritime is a stock chock-full of red flags. Trading for less than $1 per share, it’s a highly volatile penny stock. With its dilutive direct stock offerings in January and April, the company has no problem eroding existing shareholder value.
While it made some fast profits for nimble traders back in February, the stock’s historical returns are atrocious.
Back in 2019, shares changed hands for prices ranging from around $5 per share to prices topping $10 per share. In other words, long-term holders of this stock have lost more than 90% of their original investment. And, while it looks like it can’t fall far from its current trading prices (around 48 cents per share), another 90% drop isn’t outside the realm of possibility.
It’s easy to picture a scenario where the company executes a 10 for 1 reverse stock split to keep its NASDAQ exchange listing. For example, if this were to occur today, for every ten shares you hold now, you would get 1 share worth $4.50.
Even if that happened, shares could again drop back down to sub-$1 prices if the company continues on its path of heavy losses and dilutive stock offerings.
Similar to the effects of “death-spiral financing” among small companies that issue lots of convertible stock, a stock that looks “cheap” on the surface could get considerably “cheaper” and generate heavy losses.
A Rebound Is Possible, but It’s Still Too Early to Tell
I continue to hold a very bearish view on CTRM stock. Yet, I’ll concede there’s a pathway for shares to experience a near-term bounce back. It hinges on increased investor confidence that the company’s vessel expansion will be profitable.
Yes, in theory, there is a way for Castor’s current game plan, which is to invest the proceeds of its recent direct offerings into new vessels, to pay off. InvestorPlace’s Faisal Humayun broke down how the company could see substantially higher revenue with its soon-to-be-expanded fleet.
This bump up in annual revenue (which could rise from around $12.5 million to as much as $100 million), could not just help sustain its current market capitalization (around $405 million), but also justify a substantial upward move for shares.
It’s still too early to tell whether this will be the case. Dry bulk shipping industry publications have touted that prospects remain strong.
Even so, given this company’s already underwhelming track record when it comes to shareholder value, it’s hard to be confident that strong industry fundamentals will necessarily translate into high returns for investors in CTRM stock.
Bottom Line: Don’t Go Full Steam Ahead Into CTRM
From a risk/return standpoint, wagering that Castor soars once again may be worth the risk it sinks to even lower prices. There is a bull case to be made. Expanding its fleet at a time where dry bulk shipping day rates remain strong could result in this currently overvalued stock growing into its valuation and then some.
Yet, given the general volatility of small-cap shipping stocks, most investors may want to skip opportunities in this area.
If you time it right, you can see tremendous gains. That said, look at the long-term track record of not just this stock but of other shipping plays as well, such as Diana Shipping (NYSE:DSX), and Safe Bulkers (NYSE:SB).
Bottom line: shipping plays like CTRM stock historically haven’t been the best deliverers of long-term shareholder value. You may have the opportunity for gains in the near term, but be careful.
On the date of publication, Thomas Niel did not (either directly or indirectly) hold any positions in the securities mentioned in this article.
Thomas Niel, a contributor to InvestorPlace, has written single stock analysis since 2016.