Shares of the Greek oil tanker operator Top Ships (TOPS) haven’t traded above $1 a share since early November 2019, and were most recently spotted selling for just $0.14 per share — a price they’ve more or less stuck to ever since Top Ships announced, on May 15, that it was working with investment bank Maxim Group to float 59.4 million new shares for sale at an offering price of $0.135 per share (as opposed to the $0.19 a share the stock was fetching before the announcement).
This offering was subsequently nearly doubled in size, with Top Ships selling 110 million shares at the aforementioned price — also with Maxim’s assistance.
And probably not coincidentally, Maxim is the source of our latest report on Top Ships stock as an investment.
Maxim analyst Tate Sullivan explained the logic behind Top Ships’ share offering. To wit, the company is planning to buy three new tankers to add to a fleet that currently numbers 12 ships (two of which are only 50% owned by Top Ships).
Now, Top Ships expects to make good use of the new vessels, which Sullivan estimates will fetch an average of $16,600 a day in charter revenues — revenues that can be depended upon to come in pretty steadily over the course of the vessels’ 5-year contracts (with two extra option years at the end). That being said, these vessels won’t come cheap. And to prepare itself to take on the expense of buying them, Top Ships is raising cash with which to pay down some of its debt beforehand.
Working his calculator, Sullivan estimates that the $15 million Top Ships raised from its equity offerings, minus fees, will leave the company with about $14 million to play with — money that the company will use to pay down its debt to about $261 million. Weighed against that debt are the company’s $4.5 million in cash (exclusive of the cash raised from selling the shares) — and a market capitalization of less than $40 million.
I have to say, that seems like a pretty hefty debt load for such a small company — especially one that hasn’t earned a net profit since 2014, nor generated positive free cash flow since 2012.
Nevertheless, Sullivan is optimistic about the stock. Noting that the company has long-term contracts on 11 of its current vessels, plus the three coming on line, the analyst rates Top Ships stock a “buy” and assigns this $0.14 stock a target price of $0.40 per share. (To watch Sullivan’s track record, click here)
That price, by the way, is down from the $0.50 per share Sullivan valued Top Ships at before the equity raise that it helped make happen. But even so, it’s a target price that offers investors the potential to nearly triple their money off of today’s prices… assuming Top Ships reaches the price target Sullivan has set for it.
I have to say, though, that I personally would be more confident that that will happen if Top Ships wasn’t so deeply and consistently unprofitable — and drowning in debt, to boot.
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