FreeSeas (OTCQB:FREEF) is a stock that most reading this article have probably never heard of, and that is definitely a good thing. In my thirty-plus years of investing and researching stocks on Wall Street, I have never run across a stock that has decimated shareholders more than FreeSeas. Yes, the investing landscape is full of start-up and biotechnology companies that have gone out of business and created huge losses for shareholders, but I have never come across a stock that had a large viable business and has destroyed shareholder values more than FreeSeas. So what does FreeSeas do? Just how bad has the business been? What has this translated into for shareholders?
What FreeSeas Does
The following description of FreeSeas' has been extracted from their most recent SEC filed annual report:
"We are an international drybulk shipping company incorporated under the laws of the Republic of the Marshall Islands with principal executive offices in Athens, Greece. Our fleet currently consists of four Handysize vessels and one Handymax vessel, which was sold for $12,250 to an unrelated third party and subsequently entered into a long term bareboat charter with the vessel's new owners. Our vessels carry a variety of drybulk commodities, including iron ore, grain and coal, which are referred to as "major bulks," as well as bauxite, phosphate, fertilizers, steel products, cement, sugar and rice, or "minor bulks." As of April 22, 2015, the aggregate dwt of our operational fleet is approximately 148,978 dwt and the average age of our fleet is 17.7 years." Please note that all data from the SEC filing is with "000s" omitted so the above referenced vessel sale was for $12,250,000.
OK so now we know that FreeSeas operates a small fleet of ships for oceanic transport of bulk materials. This is the same business as Scorpio Bulkers (NYSE:SALT). Eagle Bulk Shipping (NASDAQ:EGLE), DryShips (NASDAQ:DRYS), Star Bulk Carriers (NASDAQ:SBLK), Diana Shipping (NYSE:DSX), Navios Maritime (NYSE:NMM) and many others. While these companies have also suffered, they are still viable ongoing businesses and may offer value to investors with a long term investment horizon. How do they compare to FreeSeas?
How Bad Is The Business?
Nothing says it better than the revenue trend extracted from FreeSeas' own SEC filing. Revenues have fallen from $57 million to just $3.77 million over five years.
With a precipitous drop in revenues like that, it would be expected that shareholders would be hurting. But there are no words to describe just how bad the pain has been for the shareholders.
The Pain of the Shareholders
I am not making this up. I could not possible make numbers like this up. But they are factual. If you owned 900 million shares five years ago, you would own one share now. The data below is from when the stock was trading under the symbol FREE. It is from April 2016, and is prior to FreeSeas being delisted from NASD and being moved to the Bulletin Board. On April 14, 2015, the stock was $1.15 when it was delisted. It has since fallen to $0.19 at the close of business today (May 10, 2016), but for the sake of this article, we are only using data from when it was NASD-listed.
Source: Yahoo Finance
To put this into perspective, 900 million shares in 2010 had a value of over $1 billion. As of April 15th, those said shares were worth $1.15.
FreeSeas Employees
Also taken from the FreeSeas annual report:
"We currently have no employees and contract all of our financial, accounting, including our financial reporting and internal controls, and other back-office services, and the management of our fleet, including crewing, maintenance and repair, through Free Bulkers S.A. and OpenSeas Maritime S.A., our Managers."
It is rather difficult to run a business with no employees but that seems to be what FreeSeas is attempting to do. Who negotiates and approves the contracts?
One final note. I called the stock Transfer Agent for FreeSeas prior to writing this article. As of today, there are 1,780,685 shares of FreeSeas common stock outstanding. That gives FreeSeas a market capitalization of just over $330,000. Not at zero yet, but a far cry from the billions of dollars lost by shareholders.
Conclusion
So there you have it. How to turn $1 billion into $1 in just over five years investing in a company that is not a start-up.
If anyone knows of a worst investment, please let me know in the comments.
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Disclaimer: This article is not intended to suggest investing in FreeSeas. It is merely an article that I thought needed to be written. Investing in micro cap and penny stocks such as FreeSeas can be risky. There is no guarantee that your investment will be safe. There is also a great likelihood that you may lose some or all of your investment. Please do your own due diligence before investing in FreeSeas or any other investment. Information provided in this article is informational and should not be the sole guide to determine if investing in the company is appropriate for you. The above are my opinions and should not be the sole purpose for initiating a trade. Always do your own due diligence prior to investing. Also remember to only initiate trades that are within your pre-defined risk parameters.
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
Editor's Note: This article covers one or more stocks trading at less than $1 per share and/or with less than a $100 million market cap. Please be aware of the risks associated with these stocks.
