Get Out of Castor Maritime Stock Before It Capsizes

Not all penny stocks are bad. There’s quite a few good companies that for whatever reason end up with a very low share price at some point. However, a lot of penny stocks are bad investments. Problems like heavy dilution, large operating losses, and unproven management teams tend to dog all these companies. In the case of Castor Maritime (NASDAQ:CTRM), all three of those issues certainly apply to CTRM stock.

A magnifying glass zooms in on the website for Castor Maritime (CTRM).

Source: Pavel Kapysh / Shutterstock.com

Undoubtedly, it’s an exciting time for the shipping industry. The world economy has come roaring back, which boosts demand for international commerce. And the blockage of the Suez Canal added extra juice to a shipping market that was already on an upswing. That said, CTRM stock is the wrong vehicle with which to play this trend.

Castor: A Tiny Company With Massive Dilution

Heading into 2020, Castor Maritime had just three shipping vessels. That’s a rounding error in the shipping industry. Most publicly-traded shipping peers have dozens if not hundreds of vessels.

Castor has sought to scale up. In 2020, it doubled its fleet from three to six. And in 2021, so far, it has bulked up to 14 ships. However, those ships don’t come free. The company has had to issue a mind-blowing amount of stock to make these purchases.

At the end of 2019, Castor had 2.6 million shares of stock outstanding. That figure had been nearly unchanged for the past few years. But in 2020, management went on a share-printing binge of epic proportions.

The share count is now up to 700 million. And we’re just through three months of the year … who knows how much more new stock will hit the market by the time the year is out. In any case, a shareholder that owned 1% of Castor Maritime in 2019 now owns less than 0.01% of the company thanks to its unprecedented dilution. In light of this, the company picking up a few more vessels isn’t remotely enough to make up for the tsunami of new shares that have flooded the market.

Up On WallStreetBets/Reddit Enthusiasm

Castor has been able to issue so many shares, in large part, because traders have been willing to buy every offering. Normally, a share price would collapse under so much new issuance. However, Castor became part of the huge short squeeze trade in January. It was one of the top held stocks on Robinhood, and was widely-discussed on Reddit.

For example, Castor has its own subreddit, r/CTRM, which has more than 16,000 members as of this writing. The r/CTRM Lounge mega-thread alone has more than 66,000 comments. And new threads with technical analysis and other information receive large amounts of user interaction. For better or worse, CTRM stock is a hot commodity with this trading community. If only the actual company had more of a fundamental case to support the excitement.

Valuation Against Peers Is Ridiculous

Castor just reported its quarterly results this week. For the quarter, revenues grew to $4.4 million versus $2.8 million for the same period last year. Sounds good in a vacuum. But when you issue a gazillion new shares of stock, you should see revenues jump more than that. Making matters worse, the revenues didn’t achieve scale; Castor actually swung from a small operating profit to a loss this quarter.

Unbelievably, Castor has a roughly $400 million market capitalization for its humble fleet along with just $4 million of quarterly revenues. The biggest tell on valuation here is that there are plenty of other comparable shipping companies. And they’re almost all trading for way less than Castor.

Whether you’re looking at price per ship, price to revenues, price to book, price to EBITDA, or other such metrics, CTRM stock comes out as exceedingly expensive. Star Bulk (NASDAQ:SBLK), for example, is worth $1.5 billion and generates $700 million in annual revenues. Meanwhile, Castor is at $400 million valuation for just $18 million in annual revenues.

Don’t forget that shipping companies are fairly interchangeable. There’s not a huge competitive moat between different shipping lines. Thus, this isn’t something like a tech company that has proprietary patents or specific engineering competencies. It’s hard to believe that Castor deserves a super-premium valuation as the shipping industry simply isn’t capable of supporting huge barriers to entry.

CTRM Stock Verdict

Castor Maritime had its 15 minutes of fame during the Reddit/WallStreetBets short squeeze phenomenon back in January. It made sense at the time. Castor is a tiny, fast-growing company with heavy short interest and a share price quoted in pennies. It checked the right boxes for a quick momentum trade.

That moment, however, has long since passed. As the most recent earnings report reminded us, this is a tiny, and as of now, unsuccessful company. There’s some option value here, so there’s a price at which CTRM stock might make sense as an investment. But it certainly isn’t a $400 million market cap. Traders buying at this price will face choppy seas ahead in coming months.

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

Ian Bezek has written more than 1,000 articles for InvestorPlace.com and Seeking Alpha. He also worked as a Junior Analyst for Kerrisdale Capital, a $300 million New York City-based hedge fund. You can reach him on Twitter at @irbezek.


Article printed from InvestorPlace Media, https://investorplace.com/2021/04/get-out-of-ctrm-stock-before-it-capsizes/.

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