In February, members of the WallStreetBets Reddit forum hyped up Castor Maritime Inc. (NASDAQ:CTRM) big time. Shares swelled in response to the enthusiasm about the penny stock. Now, fate doesn't look so promising for the company or its investors.
What happened to bring such a swift drop on Castor stock?
Castor Maritime is selling new institutional shares.
Over the long Easter weekend, investors sold off shares of CTRM in swarms. By the time the market reopened on April 5, the shares fell 22.86 percent. Since then, the shares have risen another 1.37 percent, which is a nominal change compared to the hard and fast fall.
Castor, a maritime shipping company, announced that it's offering new equity for institutional investors. The position amounts to 192.3 million shares at $0.65 each. Before the news, Castor stock was trading at $0.74 per share and now it's trading at $0.58.
The institutional stock sale will finish by April 7, so this is a fresh catch for investors. Not only will these new institutional investors get a good deal on Castor stock, but the company is also granting them warrants to buy new shares at the same value within the next five years.
It might be a mass sell-off for Castor, but its fundraising efforts will likely lead to operational expansion, which could be lucrative for investors in the long term.
CTRM dropped significantly from February highs, still sees YTD growth
Take a look at CTRM stock from a one-month vantage point and it doesn't look so great. The shares are down more than 32 percent from March 8. However, the YTD perspective is a whole different ball game.
From Jan. 4 to Feb. 11, Castor shares swelled a staggering 810.53 percent. Some of that influence stemmed from WallStreetBets users touting their plans to take CTRM to the moon.
Since the peak date, the shares have fallen 66.55 percent. However, the YTD analysis is much more heartening with an overall 204.58 percent gain. The current value of $0.58 per share might not seem like much, but penny stocks can bring major returns if you pile up on shares.
Bullish investors are buying the dip for Castor Maritime stock.
For many investors, this institutional investment period makes it a perfect time to buy in on Castor stock. They see forthcoming growth and expansion, which could lead to impressive returns. Day traders are also getting in on the action, but the risk isn't deniable. For those hoping to get more than their cost basis back, a more long-term plan might be preferable.
A warning on Nasdaq penny stocks—delisting is possible
The Nasdaq Exchange requires stocks to maintain a minimum closing bid price of $1 per share. If the share price falls below the $1 mark for 30 consecutive days, the company receives a deficiency notice. From there, there are numerous steps the company has to take to stay listed. Castor was a penny stock for about a year, although it's likely that Nasdaq gave the company a grace period based on extenuating circumstances amid the COVID-19 pandemic.
In 2019, Castor shares opened at $5.20 per share. The shares have fallen a long way, which means that they have a long way to climb.