I went to the r/CTRM subreddit for a few laughs the other day. I must admit some of the comments about Castor Maritime (NASDAQ:CTRM) stock are quite funny.
They’re definitely not quotable for our audience but it left me thinking that the shipping company and CTRM stock isn’t a rags-to-riches story.
It’s more like a rags-to-riches-to-rags story.
The last time I wrote about Castor was in June; I suggested investors look elsewhere if they believe dry bulk shipping will do well over the next 12 months. Instead, I suggested industry leader Star Bulk Carriers (NASDAQ:SBLK).
At the time, CTRM was trading at $3.35. As I write this, it’s around $2.15, down around 40%. SBLK is also down, but a more palatable 13.9%.
You could ask me 10 times which is the better buy and you’d get the same answer every time.
Pure and simple, CTRM is a dud, despite delivering a profitable Q1 2021, the company’s first since 2019.
CTRM Stock Is a Dud
To understand why Castor is a dud, one needs to go back to the beginning, to September 2017.
Castor Maritime was incorporated in the Republic of the Marshall Islands, a country with a 2019 gross domestic product (GDP) per capita of $4,073.10.
By comparison, the U.S. GDP per capita is $63,543.60. Even Cuba, generally considered by Americans to be a failed state, has a higher GDP per capita.
That should be your first tipoff that Castor isn’t the most reputable business on the planet.
The second tipoff is how it got its start.
Castor Lays the Foundation for Ongoing Control
Castor purchased Spetses Shipping Co., the owners of Magic P, a 76,453 deadweight tonnage (dwt) dry bulk carrier.
Spetses took delivery of the ship in February 2017, seven months earlier. Castor continues to own the ship as part of its 26-ship fleet.
Between October 2017 and February 2018, Castor’s CEO sold almost 139,000 shares to non-U.S. residents and citizens at prices between $5.30 and $6 per share. At the time, CEO Petros Panagiotidis was Castor’s only employee.
According to page F-7 of Castor’s May 3, 2018 prospectus:
“On September 22, 2017, Castor entered into a share exchange agreement (“Exchange Agreement”) with the shareholders of Spetses to acquire all of the outstanding common shares of Spetses in exchange for Castor issuing (i) 2,400,000 of common shares proportionally to the then shareholders of Spetses, (ii) 12,000 of Series B preferred shares to Thalassa, the then controlling shareholder of Spetses, and (iii) 480,000 of 9.75% Series A cumulative redeemable perpetual preferred shares to the then shareholders of Spetses excluding Thalassa, all at par value of $0.001,”
The important part of the above section mentions that Thalassa was the controlling shareholder of Spetses and held 52% of Castor Maritime. So, essentially, Panagiotidis was lending himself money while getting 1.2 billion votes [100,000 votes per Series B preferreds multiplied by 12,000].
Fast forward to today.
On May 28, the company did a 10-for-1 reverse split to stay in compliance with its Nasdaq listing.
As a result, the number of shares outstanding on June 2, after affecting the split, was 89,955,848, one-tenth the outstanding before the split.
So, the 1.2 billion votes obtained from the 12,000 Series B preferred shares get reduced to 120 million due to the 10-for-1 reverse split.
At present, those preferreds control 57% of the 210 million total votes [90 million outstanding plus 120 million].
Issued and Outstanding
A few days after the split, Castor entered into a $300 million distribution agreement to sell up to $300 million in an at-the-market offering.
If successful, the number of shares outstanding would jump to 240 million based on its current share price.
Panagiotidis’ voting control would slip to 33.3% [120 million divided by 360 million], but he would still be the largest shareholder by a significant margin.
I call Castor a-rags-to-riches-to-rags story because the CEO started Castor with virtually nothing, and he’ll likely leave with little to show for his paper shuffling.
Borrowing Bud Fox’s line from Wall Street, Castor is a dog with fleas.
On the date of publication, Will Ashworth 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.
Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia. At the time of this writing Will Ashworth did not hold a position in any of the aforementioned securities.