Just when you thought it couldn't get any crazier...
Nordic American Tankers (NAT) made a mockery of previous trading records on Tuesday when investors exchanged 110m shares of the stock worth roughly $807m.
Yet the bulls didn't hold full sway this time, as the stock increased only $0.14, or 2%, to $7.34, edging up its market capitalisation to $1.08bn.
While the favourite shipping stock of retail investors in the US demolished all previous records for shares volume and dollars traded, Jefferies lead shipping analyst Randy Giveans said the day's events showed why NAT is a stock to trade but not to hold.
"NAT has 147m shares outstanding, and 110m shares traded hands today — that’s 75% of the outstanding shares. With that much trading volume, it shows that most investors getting in and out of the name are looking for a short-term trade, not a long-term investment," Giveans said.
Strong gains in crude tanker rates and a white-hot floating-storage market stemming from a global oil glut have pushed NAT to astounding numbers in a 200% gain since 20 March.
NAT had obliterated its previous volumes records on Monday, trading 61m shares worth $448m. Tuesday's performance nearly doubles both of those numbers.
Through exposure on CNBC investor show "Mad Money", the Herbjorn Hansson-led operator of 23 suezmaxes is probably the one shipping stock the man on the street in the US can name, much as George Economou's DryShips was in its day.
"Unlike many of its tanker peers, there is minimal insider holdings," Giveans noted.
"Herbjorn Hansson owns less than 3% and no shareholder owns more than 5%, so the investor pool has significant breadth without much depth. NAT recently stated they have 60,000 shareholders in the US, so that means the average shareholder owns less than 2,500 shares.
"Lastly, with a share price between $5-$10, that seems to be the sweet spot for retail investors as well as institutional traders."
NAT is trading well above 200% of Jefferies' estimate of net asset value (NAV) — which Giveans admitted needs updating — while the nine other tanker peers under his coverage are just getting level with NAV. Jefferies has a "hold" on NAT on valuation criteria.
Overpriced?
Cleaves Securities head of research Joakim Hannisdahl said NAT is overpriced.
"Since we downgraded NAT to sell on 13 April and reduced our target price from $4.1 per share to $2.6, the share price has rallied 78%," he said.
"Obviously not good timing with the benefit of hindsight, but our target prices are reflecting our fair value assessment with a one-year horizon, not trying to capture short-term fluctuations in the share prices."
Cleaves calculated an implicit time charter equivalent of $77,320 per day over the next year for NAT’s fleet.
"Our base case is for suezmax spot rates to average $31,000 per day over the same period, with a high case of $56,000 per day," Hannisdahl said.
"In sum, we think NAT is priced too high, as the current strong cash flow generation is offset by an expected 20% fall in asset prices on a one-year horizon.
"But, regardless of whether investors agree or disagree with our base case, the current pricing of NAT is completely disconnected from peers and nevertheless [would] be interesting as a neutral oil tanker peer trade."
Still, NAT's phenomenal trading day came as the Dow Jones Industrial Average was slightly down and most tanker stocks lost money.
Only clean products owner Ardmore Shipping, up 5%, and mixed-fleet owner Tsakos Energy Navigation, climbing 4%, did better than NAT on the day.
Dry shares had a mostly good day, with Genco Shipping & Trading up 6%, Eagle Bulk up 4% and Star Bulk gaining 1%.
