Castor Maritime Has Gotten Way Ahead Of Itself At This Point

Cyprus-based shipping specialist Castor Maritime (NASDAQ:CTRM) has emerged as one of the leading momo stocks in the market. Its share price has shot up 212% in the past six months, making it the most overvalued stock in its peer group. The company has taken advantage of its momentum and issued a combination of new shares and warrant sweeteners to fund its expansion.  However, the growth in CTRM stock has hugely outpaced the growth in its underlying business.

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

Amidst this entire hullabaloo, the company has been aggressively expanding its fleet. It has more than doubled its fleet in just the first quarter alone, consisting of bulk carriers and a couple of Aframax tankers. Most recently, it purchased a 2011 Japanese-built dry carrier for roughly $18.5 million. It also released its earnings results in the past month, which were mighty impressive considering the pandemic’s impact on the business. Despite its progress, though, the problem with its share price continues to be a thorn in its side.

Massive Dilution

Since mid-2020, Castor Maritime has issued more than 450 million new shares and warrant sweeteners below prevailing share prices. The ongoing rally has resulted in a complete exercise of warrants, which has now taken the outstanding share count to a whopping 707 million. These developments have led to its cash balance growing by a massive 118%. Moreover, its common share capital has ballooned by over 3,800% after 2020.

The company recently announced it would be selling 192.3 million shares at 65 cents per share to existing shareholders. The offering is expected to raise to $125 million, excluding transaction-related expenses.

Hence, the company’s market capitalization has skyrocketed from $24.9 million at the beginning of the year to as high as $1.38 billion in February. The divergence naturally attracted short investors, who have been making the rounds since the beginning of the year.

With the massive growth in its price, CTRM stock is now significantly more overbought than its peers. For example, if we consider its enterprise value to sales figure, it currently exceeds the sector median by over 1,600%.  Moreover, its price to sales ratio also exceeds the sector median by more than 60%. Hence, with such remarkable discrepancies, it’s tough to get excited about CTRM stock at this time.

Recent Earnings Results

Castor Maritime’s problem is that its share price growth has shifted the attention away from its impressive financial performance. Revenues for 2020 were at $12.5 million compared to the $6 million it made in 2019. Moreover, its EBITDA was slightly higher at $2.3 million compared to the $2.2 million it generated in 2019. The company has performed exceedingly well in the past five quarters, growing revenues by triple digits.

Moreover, it continues to effectively execute its growth strategy, doubling its fleet size in the past year. As mentioned earlier, it has already added a few more vessels to its fleet this year.  Moreover, it should continue investing in the expansion of its fleet this year and beyond with its equity raises. The dry bulk shipping market is improving, and the company expects a more favorable business environment this year.  Therefore, it should pick up from where it left off in 2020 and finish off this year with a bang.

Final Word on CTRM Stock

CTRM stock has gotten way ahead of itself, and even its CEO concurs with that notion. It has been incredibly volatile of-late, but it still trades at unreasonable levels regardless of its recent correction. The sad part is that it has taken the shine off its relatively impressive earnings. Therefore, investors looking for exposure to dry bulk shipping might want to invest in industry leaders such as Star Bulk Carriers (NASDAQ:BULK) or Eagle Bulk Shipping (NASDAQ:EGLE) instead.

On the date of publication, Muslim Farooque did not have (either directly or indirectly) any positions in the securities mentioned in this article.


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