Stocks can be many things, but they surely include elements of risk as investors’ seek to build wealth. Camber Energy (NYSE:CEI) stock has been making headlines for its very volatile price action – and it appears to have room for further volatility.
The real questions related to the volatility of CEI stock are whether it is related to fundamental news, or investors simply react to the volatile stock price action based on technical analysis indicators.
I believe that there are severe fundamental red flags that make CEI stock a very speculative bet on the energy sector.
CEI Stock and the Dead Cat Bounce
CEI stock has had a very volatile trading session between Sept. 30 and Oct. 8. On Sept. 30, the stock closed at $3.82 on volume of 460,059,400. The Oct. 8 closing price was $1.71, and the volume was 964,366,800.
Just two days earlier, the stock posted a low price of 86 cents per share.
The 52-week range for CEI stock is 33 cents to $4.85.
For sure, this is a very volatile stock. It is interesting that according to Yahoo Finance, the stock has a Beta (5Y Monthly) of -2.30, meaning that in theory, the stock should be moving in the opposite direction from the stock market.
However, CEI stock is up 85.21% in 2021, outperforming the U.S. stock market. The recent dead-cat bounce in price was attributed to technical analysis. Investors rushed to buy an intense selloff, hoping there would be a reaction moving the stock higher. It paid off for those who bought the stock when it was trading for less than $1.
But the real reason for this wild price action is more severe, and is a fundamental one.
Delinquent Reports a Reason to Run
Public companies have several obligations that are crucial to protect and inform investors on a timely basis. Forms such as 10-K and 10-Q should be reported within a certain time frame after the fiscal year. If these financial reports are not filed timely, severe issues arise that can lead to the delisting of the stock.
Whenever I come across a public company that has delayed its SEC filings, my reaction is to avoid it. This is a huge red flag. Something is fundamentally wrong. Management has failed to show consistency and accuracy, also showing a lack of professionalism toward the integrity of the financial markets.
James Doris, president and CEO of the company, recently discussed the issue. He said:
“Concerning the Company’s public filings, our objective is for the Company to become current on or before the expiry of the Initial Cure Period as established by the New York Stock Exchange, which is on or about November 19, 2021.”
Camber Energy last posted a 10-K form in June 2020 and its most recent 10-Q report was filed in December 2020.
Dilution of CEI Stock Hard to Ignore
Meanwhile, in an 8-K form filed in June 2021, the company said the number of shares of common stocks increased from 25 million to 250 million after an institutional investor converted preferred stock it acquired about “in 2018 and/or 2019.”
This 8-K form brings us to another argument, that of a massive stock dilution.
In a 10-Q/A report in December 2020, Camber Energy reported that it had a weighted average number of common shares outstanding of 13,705,461 for the six months ended Sept. 30, 2020.
There has been a huge stock dilution when we compare the number of shares outstanding in the latest 8-K form. We know that stock dilution is bad for the valuation of any stock. But does Camper Energy have solid fundamentals? The short answer is no.
The Kerrisdale Capital report on Camber Energy with the interesting title “What If They Made a Whole Company Out of Red Flags?” says, “We are short shares of Camber Energy, Inc. Camber is a defunct oil producer that has failed to file financial statements with the SEC since September 2020, is in danger of having its stock delisted next month, and just fired its accounting firm in September. Its only real asset is a 73% stake in Viking Energy, an OTC-traded company with negative book value and a going-concern warning that recently violated the maximum-leverage covenant on one of its loans.”
The opaque capital structure and the value of the stake in Viking are noteworthy. The Form 10-Q of Viking Capital for the quarter ending June 20, 2021, showed a total stockholders’ deficit of $15,054,324 and net loss attributable to Viking Energy Group of $18,904,027.
As Viking Energy Group is a majority-owned subsidiary of Camber Energy, what value does this add for CEI stock investors? Owning another company that is losing money, with a negative book value, is not ideal, nor does it bring any sort of added value.
On its website, Camber Energy claims it has a growth strategy but I see no growth for the past two years in revenue, profitability or free cash flow.
Data from MarketWatch shows that 2019 revenue for Camber Energy was $2.74 million, down 60.03% compared to revenue $6.86 million in 2018. Last year, revenue collapsed to about $397,000, down 85.52% from 2019.
Camber Energy reported a net loss in four of the five years and negative free cash flow for all five years.
Verdict on Camber Energy
With prices rising for crude oil and natural gas and signs of a looming energy crisis, Camber Energy could benefit in terms of revenue and profitability.
But, while this may be the case, I do not like either the company’s fundamentals nor the delays in SEC filings. With November 2021 being the deadline for Camber Energy to file its reports, a lot of volatility may continue for CEI stock.
This mix of red flags is more than enough for prudent investors to avoid CEI stock.
On the date of publication, Stavros Georgiadis, CFA 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.
Stavros Georgiadis is a CFA charter holder, an Equity Research Analyst, and an Economist. He focuses on U.S. stocks and has his own stock market blog at thestockmarketontheinternet.com/. He has written in the past various articles for other publications and can be reached on Twitter and on LinkedIn.