Camber Energy (CEI) stock recently hit a high of $4.85 before dropping quickly down to $2.90. The following day, the stock recovered to $4.20, but failed to make any further progress. The price opened yesterday at $3.00. After falling below support of $3, a timely short report was released from Kerrisdale Capital announcing that they were short on the stock. The price dropped to $1 after several down halts. Take a look here to learn more about shorting.
Kerrisdale short report
The short report highlighted a few concerns for the company and also focused on the stock being retail-heavy as reasons why they chose this stock to short. A few points they raised were: Camber Energy failing to file financial statements with the SEC since September 2020, the danger of having the stock de listed next month and firing their accounting firm in September. They note the only real asset Camber have is the 73% stake in Viking Energy, an OTC stock with a negative book value. Kerrisdale also discredited the ESG Clean Energy license that Camber recently acquired, stating that the benefit of this is irrelevant to the market cap of the company.
Another interesting point brought out from the report is that Kerrisdale believe the float (the regular shares a company has issued to the public that are available for investors to trade) is roughly triple the reported figure. This would take the market cap to around $900M (before the drop in price yesterday).
Camber Energy response
James Doris, the President and CEO of Camber responded saying “our business relationships are legitimate and … we are firmly committed to improving the organization’s capitalization and executing on our growth strategy. With respect to 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.” Regarding the firing of their accounting firm, James Doris said via twitter that “it was inefficient for the organisation to have two auditors” and Viking’s auditor will take over both companies.
Camber Energy also had to release a statement last week clearing up that a report about a $100M offering was fake. This led many to believe that short sellers were faking documents to help their positions.
What now for CEI
Many penny stocks and low market cap companies are very volatile and rarely trade based on fundamental value. They can generate sharp spikes in price after small news comes out and normally struggle to hold significant gains. This does not mean all small caps are bad. Some small cap companies do make strong growth over extended periods of time.
We believe the CEI stock was overvalued as Kerrisdale said. Oil was up 10% and in the same time frame CEI was up 850%. Although Camber would always rise more in percentage, this was an over extension in price. Oil now sits up 15% since the beginning of September and CEI is up 150% in pre market this morning in comparison to September 1st prices.
We could see CEI trade sideways for a while between $1.50 and $2.00. What is worth keeping in mind is the short float that the stock will now have. As seen previously with Support.com and AMC, these stocks do often get a good run as shorts cover and ‘fear of missing out’ kicks in again for longs.
This will have a high reward and a high risk, so manage an appropriate size. We have seen already how quickly the price can move in either direction.