After struggling through a chaotic period following the coronavirus pandemic, tanker vessel operator Top Ships (NASDAQ:SHIP) may finally be seeing some light at the end of the tunnel. TOPS stock initially popped up 40% on Monday before extending gains in the late afternoon session. The company announced inking a time charter employment contract, bolstering investor sentiment.
Specifically, Top Ships signed a contract with a high-quality counterparty for its product/chemical tanker M/T Eco Marina Del Rey, per the accompanying press release. Following the expiry of the present time charter employment contract in the first quarter of 2024, the new charter will commence immediately. It will have a duration of three years, with the option of an additional year upon the charterer’s discretion.
As circumstances stand, the contract will generate a revenue backlog of approximately $22.4 million for the three-year period. However, this tally may rise to about $30.6 million if the charterer exercises the option for a one-year extension.
“We are very happy to have concluded this new fixture of M/T Eco Marina Del Rey more than a year ahead of the expiry of its present employment and at a daily rate which is about 36% higher than the current rate, thereby taking advantage of the strong rates prevailing in the current tanker market,” stated Evangelos Pistiolis, President, CEO and Director of Top Ships.
Further, Pistiolis added, “After considering this fixture, the total gross revenue backlog for the firm time charter period of our operating vessels, as of December 31, 2022, stands at about $259 million, increasing to about $280 million when adding the 50% of our joint venture vessels.”
A Possible Resurgence on Tap for TOPS Stock
For TOPS stock, the new charter couldn’t have arrived soon enough. Although shares got off to an auspicious start in 2023, they tumbled badly in 2022. For instance, during the trailing year, TOPS belied the implications of its ticker symbol, hemorrhaging 91% of equity value.
Of course, much of the fallout in the broader shipping industry was to be expected. Around the middle of last year, Investor’s Business Daily noted global stagflation fears impacted the market. Combined with geopolitical flashpoints, shipping companies stumbled. Not surprisingly, TOPS stock incurred a heavy blow during this time period.
Nevertheless, not all hope is lost for the shipping industry, particularly tanker owner/operators like Top Ships. According to Jefferies analyst Omar Nokta, who heads the maritime research department at the investment bank, while container lines and container-ship leasing firms may be down substantially, tanker stocks have popped conspicuously higher.
Interestingly, rival Scorpio Tankers (NYSE:STNG) shot up around 290% in the trailing year. Therefore, it’s possible TOPS stock may be playing catchup with the rest of the industry subsegment.
Typically, equity valuations in all shipping segments move up or down in unison. However, the Covid-19 crisis imposed a radical disruption to this framework. Now, as container rates peaked and started tumbling, tanker rates started to rise. Speculators may be eyeballing TOPS stock to ride coattails on this fresh paradigm.
Why It Matters
Although TOPS stock may seem like a viable high-risk, high-reward wager, it’s important to note that it remains a speculative venture at best. According to Gurufocus’s discounted cash flow (DCF) analysis, Top Ships rates as significantly overvalued.
On the flipside, while rival Scorpio Tankers also features challenges, on a DCF basis, it rates as fairly valued if not modestly undervalued. Either way, investors will still want to exercise caution in this sector.
On the date of publication, Josh Enomoto 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.