Castor Maritime (NASDAQ:CTRM) shares cruised to a huge gain this year, enabling the Cyprus-based shipping company to fund its ambitious fleet expansion. However, the good times aren’t going to last for CTRM stock. The company is a small fish competing against “whales” that dominate the shipping business.
Like GameStop (NYSE:GME) shares, CTRM stock has been adopted by the gang at Reddit for reasons best understood by them. Shares of CTRM stock have surged more than 200% during the past six months as investors placed bets that the company would benefit from an economic rebound.
It would be a massive understatement to say CTRM’s stock price gotten way ahead of itself.
For one thing, Castor Maritime doesn’t make a profit. In its most recent quarter, the company posted a net loss of $800,000, or 1 cent per share. Revenue grew 57% to $4.4 million after the company doubled its fleet from three ships to six ships.
The company also recently announced the purchase of its ninth ship as part of an effort to assemble a 15-vessel fleet.
CTRM Stock Faces Dilution Risk
Earlier this month, Castor Maritime raised $125 million by selling 192 million shares of common shares and warrants to purchases an equal amount of stock. As a result, the company has nearly 900 million shares outstanding. That seems like an enormous number of shares for a company of its size.
Many Fortune 500 members with much stronger balance sheets have smaller public floats. This includes Goldman Sachs (NYSE:GS) (344 million), Lockheed Martin (NYSE:LMT) (278 million), and McDonalds (NYSE: MCD) (745 million).
More dilutive stock sales are a given, which will weigh down CTRM’s stock price for the foreseeable future.According to a recent SEC filing by the company:
“Shares to be issued in future equity offerings could cause the market price of our common shares to decline and could have an adverse effect on our earnings per share. In addition, future sales of our common shares or other securities in the public markets, or the perception that these sales may occur, could cause the market price of our common shares to decline, and could materially impair our ability to raise capital through the sale of additional securities.”
Other Risks Loom for Investors
CTRM stock has many red flags for investors.
According to Castor Maritime’s filing, the company was notified of a possible delisting by the Nasdaq because the company’s share price closed below $1 for 30 days.
Also, CEO Petros Panagiotidis and his family have set up separate businesses that provide services to Castor Maritime.
For example, the company’s vessels are “technically managed” by Pavimar, a company controlled by Isminii Panagiotidis, the sister of Petros Panagiotidis, who is chairman, CEO and the chief financial officer of Castor Maritime. The company’s ship-owning subsidiaries pay a $600 daily fee to Pavimar for crew management and auditing, among other things.
According to an SEC filing, Castor Ships, a company controlled by Petros Panagiotidis, “manages our business overall and provides us with commercial, chartering and administrative services.” The company handles all of Castor Maritime’s vessel sale and purchase transactions, as well as shipping project and management advisory and support services.
Castor Maritime pays Castor Ships a commission rate of 1.25% on all charter agreements and a commission of 1% on each sale and purchase transaction.
After the Pandemic
To be sure, CTRM stock will benefit from rising shipping rates and a economic recovery from the novel coronavirus. But so will larger rivals such as DHT Holdings (NYSE:DHT), Diana Shipping (NYSE:DSX), Frontline (NYSE:FRO) and Navios Maritime (NYSE:NMM).
DHT owns 27 tankers DSX’s s fleet has 36 vessels. Navios “controls” 45 vessels while Frontline has 68. Though the share prices aren’t as low as CTRM stock, DHT, DSX and FRO all have potential upsides. They are all trading at discounts to the average 52-week price targets of Wall Street analysts and may be worth a closer look for investors with high tolerances for risk.
CTRM stock, though, isn’t worth the bother.
On the date of publication, Jonathan Berr did not have (either directly or indirectly) any positions in any of the securities mentioned in this article.
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