Camber Energy (NYSEMKT:CEI) is a popular stock with retail investors. Over the past couple of months, the share price has jumped from lows in August of $0.33 to just under $5 last week. It’s up 115% year-on-year. The 50% slump down to $1.53 in a single day has caused even more commotion than the initial spike. There’s one clear reason for this, and a rather big one at that!
The rally before the crash
Camber Energy is an energy and power solutions company based in North America. It owns the majority of shares in the subsidiary Viking Energy Group. Viking in turn has part ownership of multiple oil and gas fields across different states. These include Texas, Louisiana and Mississippi.
To understand why the Camber Energy share price crashed, I first need to appreciate why it rallied so much recently. There are a few different reasons for this.
The first one is the fact that commodity prices have been rising. Oil hit $80 per bbl late last week, quite a change from spring of last year when prices briefly traded below zero! Higher oil prices obviously help the business as the produce sourced is worth more in value when sold.
Another reason for the rally was confirmation of a deal with ESG Clean Energy in late August. This agreement allows Camber Energy to use ESG’s patented carbon-capture system in the United States and Canada. This system is good for the environment as an electricity generator, so makes the company more popular with green investors.
A report causing the share price to crash
Unfortunately, the benefits that the above provided for the Camber Energy share price were undone with the publication of a report from Kerrisdale Capital. In the opening paragraph, it boldly states that “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.”
It also claimed that Viking Energy Group has a negative book value, along with a host of other negative comments about the business.
Naturally, the report saw a lot of investors sell stock. Given that the company was popular with retail investors, I think a lot of panic-selling went on yesterday. This compounded the situation and led to the large fall in the Camber Energy share price.
It’ll take some time for people to verify the allegations made in the report by Kerrisdale. It’s also worth noting that the fund was already ‘shorting’ Camber Energy before the report was made public. This means that the firm stands to profit if the share price falls.
There’s nothing wrong with writing about a stock if you own it, but the publishing of the report was obviously going to cause some investors to sell quickly. So I’m cautious about believing everything written and will let the dust settle. I’d imagine Camber Energy will issue a statement soon clarifying some of the allegations made.
I’m not going to be investing though, as I already own other oil and gas stocks. The industry is volatile and high-risk. Even if I didn’t own those other stocks, I’d want to do my homework before investing here.
jonathansmith1 and The Motley Fool UK have no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
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