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Why Castor Maritime Stock Got Torpedoed for a 39% Loss in May

By Rich Smith - Jun 6, 2021 at 8:07AM

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A reverse stock split wasn't a cure to what's ailing Castor Maritime.

What happened

Castor Maritime (CTRM -1.97%) stock began May costing just under $0.50 per share. By the time the month was done, each Castor Maritime share was selling for $3.05 per share.

A sixfold increase in share price in just one month? That may sound like good news, but it wasn't. Fact is, Castor Maritime lost 38.6% of its value in May -- and the following chart proves it.

CTRM Total Return Price Chart

CTRM Total Return Price data by YCharts

So what

So how did Castor Maritime stock lose nearly 40% of its value even as its stock price went up? Easy. It reverse-split the stock.

As the name may suggest, a reverse split is the opposite of a stock split. Instead of taking one high-price share and cutting it into several smaller, cheaper shares, in a reverse split you take several cheap shares and bundle them up into one bigger share, with a bigger price tag. In Castor Maritime's case, on May 28, it bundled up and exchange 10 old shares for one new share in a 1-for-10 reverse split. But instead of having that result in a new share worth 10 times the price of an old share, it resulted in a new share worth only six times the price of an old share -- because regardless of what the price tag says, Castor Maritime lost value.  

Simple red arrow declining stock chart on a white checked background

Image source: Getty Images.

Now what

And it makes sense that Castor Maritime stock would have gone down. After all, the value of the Baltic Dry Index (BDI), which tracks the rates that dry bulk shipping companies like Castor can charge for hauling dry bulk goods across the ocean, declined by 15% in the month of May. A falling BDI is bad for Castor's business, because it foreshadows declines in the prices Castor can charge, declines in the revenues that Castor will receive, and lower profits (or even losses) that Castor will earn.  

Now, the good news is that while the BDI was still high, Castor Maritime managed to briefly turn profitable (as shown in its Q1 2021 earnings report released early in June). The bad news, though, is that with the BDI continuing to fall through early June, the chances of Castor earning another profit in Q2 2021 get worse by the day.

For the time being, Castor Maritime's stock split has its share price trading back out of penny-stock territory. But unless they want to see it trading for pennies again, investors had better hope that the BDI improves, and soon.

Rich Smith has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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Castor Maritime Inc. Stock Quote
Castor Maritime Inc.
$1.75 (-1.97%) $0.04

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