InvestorPlace’s Ian Bezek recently suggested that investors shouldn’t touch Camber Energy (NYSEAMERICAN:CEI) stock with a 10-foot pole.
“The real reason CEI stock is surging has little to do with Camber or Viking’s actual business. It’s rather because certain well-known stock influencers on social media are tweeting about the company nonstop, hoping to provoke a short squeeze,” Bezek wrote on Oct. 5.
“Once the buzz ends, however, Camber will still be just another small money-losing energy firm with its shares trading back down to where they were a month ago. In other words, look for 50-75% downside ahead in CEI stock.”
What an introduction to covering this stock for the first time.
As someone who has very little patience for oil and gas businesses or the investors who support them, I have no problem criticizing them for their harm to the planet. However, with oil prices much higher today than a year ago, I understand the attraction.
I don’t understand why anyone would spend more than 10 seconds giving Camber Energy any serious thought. As Charlie Sheen’s character Bud Fox said in Wall Street, “It’s a dog with fleas.”
Why Is CEI Stock So Bad
For starters, CEI stock trades at less than $2. Amazingly, as recently as the end of September, it traded near $5, close to getting out of penny-stock hell.
However, as our own Chris MacDonald reported on Oct. 5, the company’s in the crosshairs of a short seller. Kerrisdale Capital announced it had a short position in the small-time oil and gas company. The stock lost 60% on the news.
Kerrisdale’s seven-part tweet surely didn’t help. Nor did its 25-page report.
Of the nine things to know about the short report my colleague reported on, there’s no question the mysterious share count is the most troubling aspect of Kerrisdale’s thesis.
Anyone who covers electric vehicle stocks and other high-growth investments knows how difficult it can be to keep up with the share dilution from at-the-market offerings, etc. Camber Energy, however, appears to be next-level confusing.
According to Kerrisdale’s report, almost 91% of the estimated 104.2 million common shares outstanding were from Series C preferred share conversions to common since 2018.
“As of July 9, 2021, the Company had 104,195,295 shares of common stock issued and Outstanding,” the company’s July 8-k stated.
“The increase in our outstanding shares of common stock from the date of the Company’s February 23, 2021 increase in authorized shares of common stock (from 25 million shares to 250 million shares), is primarily due to conversions of shares of Series C Preferred Stock of the Company into common stock, and conversion premiums due thereon, which are payable in shares of common stock.”
Kerrisdale states that one Series C preferred share is convertible into 43,885 shares of common stock.
Camber Energy tried to sue the Discover Growth Fund, the holders of all of the Series C preferred shares, arguing that the terms of its agreement with the investor/lender were slanted in their favor. However, the judge threw out the case suggesting Camber Energy should have had better lawyers.
So, Kerrisdale argues in its short report that the company has 285 million fully diluted shares outstanding, an amount higher than the 250 million authorized and 174% higher than the stated amount outstanding as of July 9.
What This Means to Shareholders
Based on 104.2 million shares outstanding and a share price (at the time) of $1.19, Camber had a market capitalization of $124 million. Therefore, if the 285 million share figure outstanding is accurate, the share price should have been 44 cents, or 63% lower.
And that doesn’t consider all the other crap surrounding Camber Energy, including its ridiculous association with Viking Energy Group (OTCMKTS:VKIN).
The last time Camber Energy filed a legitimate quarterly report was in June 2021. In the quarter, it had revenue of $33.7 million, 72% less than its sales in Q1 2020. In case you’re wondering, it lost $725,909.
According to the company’s January 2021 DEF 14A, the only company with an ownership stake of more than 1% is Discovery Growth Fund at 9.99%. The fund was based in the Cayman Islands. However, according to its latest filing, it’s based in the U.S. Virgin Islands. Someone by the name of John C. Kirkland is the fund manager and has been since 2014.
According to the SEC, Kirkland’s made investments in three stocks – Camber Energy, CleanSpark Inc. (NASDAQ:CLSK), and OWC Pharmaceutical Research (OTCMKTS:OWCP) – those stocks are worth $2.9 million, $17 million, and $13,873.
So, the person holding up the Camber Energy lifeboat has investments totaling less than $20 million. That’s a lot of money for most people, but for successful money managers, it’s chump change.
As for Kerrisdale, according to WhaleWisdom, it has approximately $1.8 billion in assets under management.
I don’t know about you, but I’m going to trust the New York hedge fund over the St. Thomas hustler.
I believe Camber Energy ought to be permanently off-limits to oil and gas investors. And I don’t even like you!
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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.
