Tuesday's Low-Float Du Jour: Castor Maritime

Castor Maritime CTRM is the latest and one of the most extreme recent examples of the powerful combination of low float and heavy trading volume.

Castor shares traded higher by more than 40 percent on Tuesday. The stock nearly doubled on the open after Castor reported 20-percent revenue growth in the six months ending March 31. Net income over that six-month stretch was also up 107 percent to $330,000.

The report market the first reporting period for Castor as a Nasdaq-listed entity. Castor was officially approved for Nasdaq listing back in February. Prior to its listing, Castor shares traded over-the-counter in the Norwegian market.

What Happened

While the earnings and income growth were impressive, market dynamics likely also played a large role in the volatile Tuesday trading.

Castor is one of a number of low float stocks, many of which are in the dry shipping group, that have experienced large short-term rallies on little or no major news in recent quarters. When shares start to rise, a flood of momentum traders coupled with a limited float can lead to parabolic spikes in share price.

While an earnings beat is always a fundamental catalyst for any stock, such an extreme move in a stock is often a sign that a low float has created a short-term shortage of available shares for traders.

Why It's Important

According to Yahoo Finance, Castor has just 2,200 shares held short for a short percent of float of essentially zero. Those numbers suggest a short squeeze is likely not the culprit behind the large move.

The stock’s 810,310-share float is tiny, however, and a huge jump in trading volume following earnings explains the extreme volatility. On Tuesday, Castor’s trading volume was 6,657,414 shares as of around 1 p.m. compared to its long-term average daily trading volume of just 329,360 shares.

If Tuesday’s big jump at the open was driven primarily by the company’s earnings fundamentals, traders can expect the stock to bounce back as the market approaches the close. If the big gains were driven mostly by the stock’s small float, the sell-off may continue in the hours and days to come.

At time of publication, the stock traded at $6.05 per share.

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