The meme stock mania has captured the imaginations of investors across the globe. Retail traders have flipped the script on the fundamentals of investing and helped skyrocket prices on the most disadvantaged stocks. Oil and gas firm Camber Energy (NYSEAMERICAN:CEI) is one such company, which has seen its stock price increase since the start of the year. However, CEI stock is overvalued from a fundamental standpoint, and its worrying outlook is a cause for greater concern.
Camber Energy’s market capitalization has soared over $300 million in the past few months. A lot of it is due to the optimism surrounding its intellectual property license agreement with ESG Clean Energy. Camber believes that it could use ESG’s carbon capture system to produce electricity in a more environment-friendly way.
However, there is no indication of how the deal could be valuable to the company at this stage due to the the scathing report from short-seller Kerrisdale Capital. In the report, Kerrisdale raises several questions about Camber Energy’s financial positioning.
Kerrisdale Capital’s Accusations
Camber Energy lost roughly 50% of its market cap on Oct. 5, after Kerrisdale Capital ripped it in its report. The short seller made some serious allegations against the company, noting that its growing concern status is likely in jeopardy. For example, the report indicated that Camber had essentially one primary asset: its 73% stake in Viking Energy (OTCMKTS:VKIN), with negative book value.
The short seller believes that the market has been completely ignorant of Camber’s growing share count and distressing capital structure. Kerrisdale writes that the fully diluted share count is likely to be three times more than the currently reported figure.
These accusations appear to be valid and in line with Camber’s deplorable financial performance. If we look at Viking Energy’s latest financial report from the first half of 2021, both its shareholders’ equity and working capital are negative, even though its operations are generating profits. Those profits; however, are being gobbled up by interest payments and derivative losses. Hence, its plausible to assume that Viking is close to bankruptcy, which could be disastrous for Camber.
The ESG Deal
Perhaps the biggest catalyst for Camber is its agreement with ESG Clean Energy. The deal provides patent rights to Camber to generate electricity, including ESG’s patented carbon capture mechanism. Camber believes that the technology can be instrumental for several industries, including cryptocurrency mining, recycling facilities and others.
Camber’s CEO James Doris expounded
“In my view this transaction positions us as an industry leader in terms of being able to assist with the power generation needs of commercial and industrial organizations while at the same time helping them reduce their carbon footprint to satisfy regulatory requirements or to simply follow best ESG-practices.”
However, in the long term, ESG Clean Energy’s deal is unlikely to have much of an impact on Camber’s financials. ESG has been in business since 2016 but has completed only a few small projects. There is no indication that its technology could prove to be revolutionary or bring in substantial revenues for Camber. However, the retail trading crowd seems excited about it, especially after Elon Musk’s tweet about donating $100 million to a firm boasting the best carbon capture technology.
Bottom Line On CEI Stock
Due to the retail trading frenzy, oil and gas meme stock Camber Energy has enjoyed a phenomenal run at the stock market. But like with most meme stocks, CEI has no noteworthy catalysts which could potentially transform its underlying business. It now trades at an overblown valuation as well, which makes it a highly unattractive bet.
On the date of publication, Muslim Farooque 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
Muslim Farooque is a keen investor and an optimist at heart. A life-long gamer and tech enthusiast, he has a particular affinity for analyzing technology stocks. Muslim holds a bachelor’s of science degree in applied accounting from Oxford Brookes University.