Thursday, February 18, 2021

CTRM stock: Hold 1000 shares to keep learning

 Feb. 18, 2021


I quickly made $4100 us dollars on CTRM stock position 6000 shares at cost of 0.83/ share in less than one month, so I decided to purchase back 1000 shares of CTRM, since I like to learn short sale and how to do the analysis. 

Idea to go back to 0.10/ share 

Here is the article. 

Castor Maritime (CTRM), a Marshall Islands company, headquartered in Cyprus, listed in 2018 as the proud owner of a single vessel, raising approximately $7.6 million. Its book value at the time was approximately $8.5 million with negligible leverage. It now owns 6 relatively old (average age 14.6 years) bulk carrier vessels and the (unaudited) 9/30/20 financials show a book value of $53 million with $37.6 million in cash, $31.2 million of vessel and $20.9 million of debt/liabilities.

However, its market cap on Friday 2/12 was $748.6 million. Why is a relatively minor shipping company trading at well over 10 times book?


The company recently announced agreements to buy two 2005 vessels (taking its stock from 7 to 9) and a previous agreement to buy a 2010 Japanese dry build carrier for $15m The Korean 2005 vessels (lifetime expectancy 18-25 years) have a daily rental of $15K, no idea of the return on the other capital stock seems OK. EPS 2018 63c, 2019 41c. Rough pandemic, obviously, but I assumed an expanding shipping company's valuation would be far above 3x EPS. However the upcoming/current share dilution is addressed in the above cited article so, thanks @Invetrts :

When you sell approx 460 mil shares & warrants at $0.19 and $0.35 no more than 2 months ago you cannot expect any support for $0.7 or $0.6.

This refers to a tripling of outstanding shares announced recently.

Starts to look fishy, until you see that the company's debt-to-equity prior to the massive issues stands at 0.22 compared to an average of 1.17 for the industry with a leverage ratio of 1.39 against 3.38, while book value per share is 3.39 against the industry average of 1.05. (MSN Money)

So a rough estimate will be that the book value is diluted by a factor of 3 to stand at fractionally above the industry ave (at 1.12) while the debt (interpreting the new issue as borrowed capital to keep shareholders happy for the purpose of fundamentals analysis) also rises to industry standard levels.

Where does that leave us? If the company can regain its EPS from even 2019 (call it 40c, it was 63c in 2018) the effective 3x-diluted share price (currently $1.2) of 40c gives a forward P/E of 1(!).

Furthermore, that (lower of the two) 2019 EPS was derived from $6.4m revenues, which even in the current climate have risen to $10.9m over the past 4 quarters.

With this very likely farcically flakey analysis, I don't see it as likely that CTRM is currently priced above fair value. What is that fair value? That probably depends on whether the company's recent dilution was a scam or was simply raising funds to expand its capital base. The CAGR on shares outstanding however stands at 43%. - That will need to come down pretty far pretty fast if this company is to remain at current valuation levels.

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