A few months ago I tried to warn readers away from Castor Maritime (NASDAQ:CTRM).
I didn’t pull punches. I talked about how penny stocks are easy to manipulate. I even threw in some 19th century references.
But some of you got in anyway. Maybe someone on Reddit told you this was easy money. Maybe you saw that CTRM stock cost 42 cents a share and figured you could get 1,000 shares for $420.
Two months later you’re sitting on 100 shares, not 1,000, after a reverse stock split. The shares open for trade June 15 at $3.35 each. This means means you’re down 25%.
Finding Opportunity in Capacity Shortage
Castor Maritime has a story that makes superficial sense. The idea is to take advantage of a shortage of dry bulk shipping capacity by buying small ships that fill the gap.
In the most recent quarter, it worked. Castor Maritime booked a profit of $1.1 million, 2 cents per share, on revenue of $7 million in its most recent quarterly report. At the end of the period, it still had over $64 million in cash.
CEO Petros Panagiotidis predicted the company would soon have 26 ships, including eight fuel tankers. He told the press Castor was getting shipping contracts. It seemed all would be well.
But will it? Panagiotidis’ statement came on the heels of the reverse split. Since then, the stock has gone down.
No Private Equity Interest
Castor Maritime solves a short-term problem by creating a long-term problem.
It’s plugging the gap in dry-bulk and tanker capacity with small, old, inefficient ships that will need repair down the line. That’s why private equity wasn’t buying what Panagiotidis was selling. That’s why the shares dropped 39% in May. That’s why the reverse split was needed, to keep the shares over $1 a piece and stave off delisting.
A short-term profit won’t pay off long-term obligations. When shipping returns to normal, as it will, Castor’s capacity will be the first to be dropped.
Do the Research
Panagiotidis is not some crusty old salt who knows the sea. He’s 31. His sister, Ismini, is handling management and crew services through a company called Pavimir. They are the children of “Greek billionaire” Gabriel Panagiotidis, once number 896 on the Forbes’ billionaire list. Ismini was profiled last year as being among a “new generation” of Greek shippers. They are blaming regulation for the industry’s troubles.
Gabriel Panagiotidis, sometimes known as “Billy,” ran Excel Maritime as Gabriel Panayotides. Excel was incorporated in Liberia and its registered office is in Bermuda. The company filed for bankruptcy in 2013. If he ever was a billionaire, it was in the late 2000s, when he was putting Excel together.
Reddit seems to think this history means Castor is backed by “HUGE amounts of family money and experience.” This claim was repeated several times during January.
The Bottom Line
I wouldn’t touch Castor with a 10-foot barge pole.
It didn’t take long to find the family’s story. The father isn’t being allowed back onto the market, so he’s sending his kids. They’re doing the same thing he did in the last decade. Companies that use Liberia addresses and Bermuda offices shouldn’t be complaining about regulation.
It’s not going to work.
I feel sorry for people who let themselves get talked into this name. But there’s a lesson here. Do your own research. Don’t rely on Reddit alone, or even on me. Check things out before you put down your money.
On the date of publication, Dana Blankenhorn 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.
Dana Blankenhorn has been a financial and technology journalist since 1978. He is the author of Technology’s Big Bang: Yesterday, Today and Tomorrow with Moore’s Law, available at the Amazon Kindle store. Write him at danablankenhorn@gmail.com or tweet him at @danablankenhorn. He writes a Substack newsletter, Facing the Future, which covers technology, markets, and politics.