What’s next for Castor Maritime (NASDAQ:CTRM) stock? The dry-bulk shipper has soared nearly five-fold since January. Even after pulling back more than 50% off its highs ($1.95 per share) in recent weeks.
News of the company’s expansion may be playing a role in its upward surge, but maybe its sudden popularity among penny stock traders, particularly those active in Reddit’s r/WallStreetBets (WSB) trading community has been a more important factor.
As seen in my coverage of names similarly boosted by online hype, I’m by-and-large skeptical about so-called “Reddit stocks.” While it’s debatable whether this one can hold onto its recent gains over the long-term, investor enthusiasm may not be done just yet.
Valuation-wise, it’s hard to justify buying this stock. Comparing its market capitalization (over $500 million) against its operating results (around $11 million in trailing 12-month sales) and balance sheet (book value of $53 million), clearly, this isn’t a value play.
In the near-term, this likely won’t matter. As long as the hype continues, expect Castor Maritime to remain near today’s price level. If further developments come out and get hyped up by the Reddit set, we could see shares go on yet another rally before it’s all said and done.
Nevertheless, don’t take this to mean shares are a screaming buy. At the end of the day, it’s a stock to gamble on, not to invest in. If you’re looking to wager on continued penny stock madness, however, this name may be right up your alley.
Why You Can’t Trade CTRM Stock on Fundamentals
Buying and selling stocks based on their fundamentals and valuation is typically the best way to invest. Of course, that’s in normal market conditions. Sure, in prior decades, you’d occasionally see an overhyped penny stock like Castor Maritime rise and fall. Leaving early movers (or more active participants) sitting on big gains, with those late to the party holding the bag.
Yet, blame on Covid-19. Blame it on the rise of Robinhood. Blame it on the increased influence of r/WallStreetBets and similar forums, but in the market’s “new normal,” stocks offering more sizzle than steak have remained inflated longer than they should have remained solvent. Just take a look at GameStop (NYSE:GME).
Even after cratering once it was clear Redditors weren’t going to hold it with “diamond hands,” GME stock has managed to get back up towards its prior unsustainable price levels.
Why is this relevant to a discussion on CTRM stock? As the mentality that sent GameStop to the moon continues to play an outsized role, you can’t trade this particular “meme stock” on its fundamentals.
Yet, while that does point to shares holding steady (or heading higher) from here, pay attention to the minefield of risks still inherent with this stock. Once enthusiasm cools completely, there’s not enough in play to support its current valuation.
A Binary Bet on Continued Market Madness
The Reddit set’s interest in this old economy stock is somewhat unique. The most popular penny stocks with the WSB crowd largely have been plays on recent trends. These include EV name Ideanomics (NASDAQ:IDEX), and pot stock Sundial Growers (NASDAQ:SNDL).
Yet, outside of that, CTRM stock is your typical penny stock. Raising capital via dilutive equity offerings. Moving higher based on hype rather than true changes to its fundamentals. A situation where those buying now, after it’s become popular, are very likely to see tremendous losses.
As penny stocks at-large continue to trade divorced of valuation, the inevitable crash may take longer than expected. Once the recent “meme stock” trend ends completely, though, expect this stock to begin plummeting back towards its prior trading levels.
Granted, this doesn’t mean you can’t find a way to profit from it in the near-term. With bankrolls replenished from the recent stimulus package, small retail traders could be ready to plow this money into speculative stocks such as this one.
This points to another possible upwards move for CTRM stock. However, keep in mind, this remains more a gamble than a true investment. Buying this now is a binary bet on continued speculative madness. Nothing more, nothing less.
Bottom Line: If You Must Buy, Tread Carefully
Castor Maritime may have more prosperous days ahead, but this rebound in its prospects is more than reflected in its share price. As retail traders continue to dabble in this and other penny stocks on anything but fundamentals, it may be a while until the bottom finally falls out of it.
In fact, with the potential for the recent round of stimulus to fuel more speculation, you may be able to take a gamble, and profit, from CTRM stock once again. However, if you choose to roll the dice, tread carefully.
On the date of publication, Thomas Niel did not (either directly or indirectly) hold any positions in the securities mentioned in this article.
Thomas Niel, a contributor to InvestorPlace, has written single stock analysis since 2016.