With some big moves, Camber Energy (NYSE:CEI) stock has garnered the attention of investors and speculators. At the beginning of September, CEI stock was trading as low as 45 cents. Since then, the stock has touched highs of $4.85. However, the speculative surge in the stock was dented by a negative report from Kerrisdale Capital.
I would still steer clear of CEI stock at its current levels around $1.30. It’s clearly a meme stock, and there is not much to talk about in terms of fundamentals. After the Kerrisdale report, it’s unlikely the stock will witness another big rally anytime soon.
The report points out that the company’s “only real asset is a 73% stake” in oil and gas company Viking Energy (OTCMKTS:VKIN). The latter has a negative book value and a market capitalization of $98.6 million.
CEI stock currently trades at a market capitalization of $359.4 million. However, Kerrisdale Capital points out that the fully diluted market capitalization of the company is $900 million.
The capital structure is another red flag. Importantly, if the only real asset is a 73% stake in Viking, CEI stock already seems significantly overvalued.
Camber Energy responded with an affirmation that the company’s “business relationships are legitimate.” However, there was no elaboration on the concerns related to the capital structure.
Camber’s Valuation Is Difficult to Determine
An important point to note is that Camber Energy has not filed any financial statement with the SEC since September 2020. The company claims to have an active interest in “several oil and gas properties in the onshore Gulf Coast region.”
If there were indeed game-changing assets, the surge in energy prices would have been reflected in the stock. However, the recent rally was purely speculative and driven by news related to Camber’s focus on clean energy initiatives.
Energy companies make it a point to provide details on proved and probable reserves. That provides the basis for company valuation, but it’s missing for Camber Energy. So, what’s the basis of current valuations?
In August, Camber announced that Viking Energy has secured an exclusive intellectual property license for a patented carbon-capture system. This is one catalyst that contributed to the CEI stock surge. Anything related to clean energy attracts market attention.
However, there are two important points to note.
First and foremost, the license is exclusive for Canada and non-exclusive for 25 locations in the U.S. Furthermore, Camber Energy has not provided any details on how this license will impact revenue growth. In all probability, it’s unlikely to have a meaningful effect.
The CEI stock reaction was therefore exaggerated, and the Kerrisdale Capital report served as a grounding catalyst.
For Now, CEI Stock Is Not Worth the Risk
In August, Camber Energy also announced the acquisition of a majority interest in Simson-Maxwell. The latter is a manufacturer of industrial engines, power generation products, services and custom energy solutions.
A key point to note is that Camber Energy has failed to provide details on the acquisition cost. However, these seem to be small acquisitions with the company having limited financial flexibility. The impact this agreement will have on growth remains an uncertainty.
It’s also worth noting the company’s last quarterly report showed significant losses at the operating level. I want to go back to the Kerrisdale Capital report that points out that Viking Energy “recently violated the maximum-leverage covenant on one of its loans.” Based on this information, the financial risk seems high.
Overall, these uncertainties mean CEI stock is not worth considering. There is also a lack of clarity on the company’s business growth plans. At best, the stock is a speculative buy if the correction sustains and CEI stock falls below $1.
But for now, there are other, better opportunities to speculate with in the equities and cryptocurrency space.
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On the date of publication, Faisal Humayun did not have (either directly or indirectly) any positions in any of the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Faisal Humayun is a senior research analyst with 12 years of industry experience in the field of credit research, equity research and financial modelling. Faisal has authored over 1,500 stock specific articles with focus on the technology, energy and commodities sector.
