Its reverse stock split late last month may be putting it back in the news, but this does little to change the story with Castor Maritime (NASDAQ:CTRM) stock. Sure, the split will keep it trading on the Nasdaq exchange rather than being forced to trade on the over-the-counter market.
Delisting may now be off the table, but other issues such as heavy shareholder dilution remain in play. CTRM diluted shareholders heavily in the past, and it’s done so many times this year.
Who’s to say we won’t see even more dilution down the road?
Also, Castor Maritime’s reverse stock split may keep it trading on a major exchange. But it could ultimately backfire, and result in more downward pressure being applied to shares.
So, what the play with Castor? Reddit speculation has come and gone. It’s not likely to return. Without speculative frenzy and the high chances of disappointing results ahead, your best move is to steer clear.
Dilution Remains the Top Concern With CTRM Stock
When I last wrote about Castor Maritime, I discussed how the company has a long history of destroying shareholder value. Namely, by raising money through dilutive stock offerings, only to see what it does with the proceeds (acquiring/operating dry bulk carriers) fail to be profitable.
Despite the fact this strategy has failed to deliver value for shareholders, this year it has stuck to this strategy. Taking advantage of the hyping up of its stock by Reddit speculators, its management smartly seized the opportunity and executed several direct offerings. The largest of these occurred in April, when the company raised $125 million from the sale of new shares of CTRM stock.
Castor quickly put this capital infusion into use. Over the past few months, it has vastly expanded its fleet of shipping vessels. In theory, plowing these funds into operating assets could result in materially improved results for the coming going forward. That assumes that strong demand will continue for the dry bulk shipping industry.
But what if this strong demand ends up being only temporary? If demand falls back and daily charter rates go down , its aggressive fleet expansion may fail to pay off. Worse yet, if the company continues to stick to its current game plan, whether it is profitable or not, we could see even more shareholder dilution. This points to the stock, down more than 90% since 2019, continuing on its downward spiral.
Don’t Count on the Reverse Stock Split Saving The Day
There are some positives from the company’s reverse stock split. As I said above, doing this prevents the stock from losing its Nasdaq listing. A move from a major market listing to an OTC listing would result in fewer retail investors (who are responsible for its wild moves) from having access to it. That could have a negative impact on prices.
Yet, I wouldn’t count on this fully saving the day here. In fact, as InvestorPlace’s Ian Bezek pointed out on May 27, the reverse split could still hurt CTRM stock, by making it more appealing to short sellers. Before the split, potential profits from the stock going from 50 cents to zero was outweighed by it making outsized moves on further “meme stock” speculation.
But now, at around $3.20 per share? The proposition is more favorable to those taking the short side of this trade. Add in the fact that speculative interest in Castor hasn’t come close to climbing back to the manic levels seen last winter, and there may be more market participants keen on selling/shorting it, as opposed to market participants clamoring to buy it.
Putting it simply, barring the company posting blockbuster results in the coming quarters, don’t expect the excitement to return to CTRM stock. And as more cash out of it or bet again, expect this shipping operator to sink from today’s prices.
Bottom Line: Don’t Roll The Dice
Meme stock madness may still be in play with GameStop (NYSE:GME) and AMC Entertainment (NYSE:AMC). But this rebound in enthusiasm has failed to trickle down to the lower-priced names once popular with the Reddit trading community. I’m talking about not just Castor Maritime. Other Reddit favorites that have struggled to bounce back include Sundial Growers (NASDAQ:SNDL) and Zomedica (NYSEAMERICAN:ZOM).
With meme stock mania no longer in its corner, the company’s latest fleet expansion needs to pay off. If it fails to do so, and the company continues to dilute shareholders, expect CTRM stock to continue on the downward spiral it’s been on since 2019.
In short, little reason to roll the dice with this risky shipping play.
On the date of publication, Thomas Niel did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Thomas Niel, a contributor for InvestorPlace.com, has been writing single-stock analysis for web-based publications since 2016.