Castor Maritime Might Raise More Capital To Buy Ships, Crushing CTRM Stock

Stocks to sell

At less than one dollar per share, Castor Maritime (NASDAQ:CTRM) stock is an interesting option for investors.

A magnifying glass zooms in on the website for Castor Maritime (CTRM).

Source: Pavel Kapysh / Shutterstock.com

The firm just raised $125 million at 65 cents per share as of April 5. And now, CTRM stock sits at 48 cents. This drop has been going on for a while, as I suspected it would in my last article on the stock. The problem is the company might raise more capital, which will keep pushing CTRM stock down further.

And why shouldn’t it? After all, at the end of 2020, the company had a common stock book value per share of 39.9 cents per share. It had $52.383 million in shareholders’ equity and 131.212 million shares outstanding.

In other words, Castor Maritime was able to raise cash above its book value per share.

Selling Capital Above NAV

Since then the company has bought 11 more ships and raised at least $160 million, and possibly more in terms of warrant proceeds. That information is from a Seeking Alpha analyst who does a pretty good job of analyzing the present situation. However, his summation of the net asset value (NAV) is not mathematically correct. Nevertheless, we can use some of the information he provides.

For example, the author believes that Castor Maritime has raised $160 million borrowed $15.3 million and paid out $122.3 million to buy various ships. In addition, it is possible that $83.4 million in warrants may have been issued, but let’s assume they have been. Moreover, now there are $183.1 million in vessel assets and $14.4 million in preferred stock.

As a result, the asset side of the balance sheet has $145.3 million in cash and $183.1 million in vessels, or $328.4 million total. The liability side has $48.8 million in debt and $14.4 million in preferred for total liabilities of $63.2 million. This implies that $265.2 million in net assets. Since there are now also now 899.5 million in shares outstanding, according to the Seeking Alpha analyst, the NAV per share is 29.5 cents per share. The analyst estimates 31 cents. We won’t know for sure until the company issues its first-quarter earnings release.

But one point is clear. As long as your company can keep issuing equity at 2 times or more above book value per share, the underlying book value will rise. That is why Castor Maritime will likely keep on issuing more capital to buy more ships. It just did so at 65 cents per share when its NAV was at 30-31 cents. And even now, at 48 cents today, it is still above NAV.

What To Do With CTRM Stock Now

If your company keeps on issuing shares and your earnings do not rise commensurately, as is likely in this case, your company’s stock will fall. This is due to the excessive dilution from issuing more shares without enough value to cover the increase.

That is what will happen with CTRM stock as long as their stock stays above 31 cents or so. In other words, potential investors in the stock might want to wait until it falls further. Don’t expect to make any investment until either (1) the company issues its next clear balance sheet, and/or (2) the stock is at least two-thirds of the price of its estimated NAV per share.

There is a good reason why you would wait until it is two-thirds of the NAV. This is so that if the company keeps on losing money, the NAV will not fall below your purchase price. On the other hand, it also presents a potential 50% upside opportunity if the stock is ever taken over at or above its NAV price.

So, a patient investor will wait for a good opportunity and a margin of safety before buying into CTRM stock. And right now, it looks like that price should be no higher than 21 cents per share, or two-thirds of its present NAV per share.

On the date of publication, Mark R. Hake did not hold a long or short position in any of the securities in this article.

Mark Hake writes about personal finance on mrhake.medium.com and runs the Total Yield Value Guide which you can review here.