Revisiting NaturalShrimp: Progress Is Slow And I Remain Bearish – Seeking Alpha

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In 2021, I wrote bearish SA articles on more than 30 OTC companies that seemed to have attracted significant retail investor interest and one of them was NaturalShrimp (OTCQB:OTCQB:SHMP). The article came out in October, and I think its a good time to revisit this company considering that a lot has happened since then.

NaturalShrimp closed 2021 with a loss of over $45 million, mainly due to $29.4 million in legal settlement expenses. The company expected to book revenues of between $0.3 million and $0.5 million in Q4 2021, yet sales came in at only $16,640. Also, NaturalShrimp still hasnt uplisted to NASDAQ.

Overall, I continue to think the business of NaturalShrimp isnt worth much in its current state and Im still bearish despite the share price coming down by over 40% since my first article on the company came out. Lets review.

NaturalShrimp says that it has developed the first-ever shrimp-focused, commercially operational recirculating aquaculture system. The idea is to produce a naturally-grown shrimp crop weekly without the use of antibiotics or toxic chemicals. NaturalShrimp has facilities in Texas and Iowa, and in October it announced a deal for a three-month trial and delivery of 25,000 pounds of live shrimp. The first deliveries started in November and the company projected to book sales of between $0.3 million and $0.5 million in Q4 2021. However, revenues for the quarter came in at only $16,640. Operating expenses, in turn, quintupled to $2.53 million.

NaturalShrimp

NaturalShrimp also booked $29.4 million in legal settlement expenses during the quarter. The settlement includes the issue of 93 million shares and to understand how we got here we need to go back several years. Back in 2015, NaturalShrimp bought the assets of a company named NaturalShrimp Holdings and the latter got an 88.62% stake in the company. In 2020, one of the shareholders of NaturalShrimp Holdings filed a lawsuit against NaturalShrimp alleging breach of contract for the latter's failure to exchange his shares in NaturalShrimp Holdings for shares in the company. In December 2021, the case was closed, and each shareholder of NaturalShrimp Holdings is set to receive shares of NaturalShrimp.

Turning our attention to the balance sheet, the situation doesnt look well even after NaturalShrimp raised $15 million through the sale of a 12% secured promissory note. As of December, NaturalShrimp had $7.67 million in cash while its working capital deficit stood at around $16.3 million which creates doubts about how it will be able to finance the expansion of its production facilities without significant stock dilution. Plans for the remainder of the year are ambitious with the construction of a 480,000 square foot shrimp production facility in Las Vegas expected to start in Q3. Also, NaturalShrimp wants to build a 240,000 square foot shrimp production facility in Florida. So how does the company plan to finance these facilities? Well, its currently searching for $25 million in grants for the Florida plant but the plans for the Las Vegas facility are still unclear, and I doubt things will go smoothly considering NaturalShrimp has been missing projections. Besides the missed Q4 2021 sales estimates, the company still hasnt uplisted to NASDAQ despite saying in October that it was hoping this would happen within 90 days.

Looking to the financial performance in the near future, NaturalShrimp now expects to produce 25,000 pounds of shrimp in Q1 2022. Considering the October 2021 supply contract was inked at $10.50 per pound, were looking at revenues of only $0.26 million.

Looking at the market valuation of NaturalShrimp, the company is valued at $190.7 million as of the time of writing although its share price has decreased significantly since my first article came out.

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I think the main reason for the high valuation before was retail investor interest as there were a large number of posts about the company on websites like Twitter, StockTwits, and Reddit. It even has its own subreddit at r/SHMP with 434 members as of the time of writing. Note that NaturalShrimp isn't doing the promotion of its business or shares itself, but this is being done by a significant number of private investors and traders.

In my view, the share price is likely decreasing due to fading retail investor interest as a result of the underwhelming financial performance of the business. I think that the share price will continue to decline in the near future as retail investor interest is unlikely to return.

Looking at the risks for the bear case, I can think of two major ones. First, I could be wrong about NaturalShrimps ability to secure funding for its new facilities and the company expands its business in 2022. Second, meme stocks and retail investor interest are difficult to forecast, which means that the market capitalization of NaturalShrimp could become detached from the fundamentals once again.

NaturalShrimp booked sales of $16,640 In Q4 2021 and revenues in Q1 2022 should come in at around $0.26 million. I find these figures underwhelming and I think they are leading to a decrease in retail investor interest. Also, it doesnt help investor sentiment that the company still hasnt uplisted to NASDAQ.

NaturalShrimp has significant production expansion plans for 2022, with new facilities in Nevada and Florida. However, the company had a $16.3 million working capital deficit as of December and I doubt it can fund the construction of these facilities without significant stock dilution.

Overall, I continue to think that NaturalShrimp is overvalued. However, the short borrow fee rate stands at 40.85% as of the time of writing, according to data from Fintel. Unless you have a very high-risk tolerance, it may be best to keep an eye on the company and wait for the short borrow fee rate to drop to single-digit levels.

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Revisiting NaturalShrimp: Progress Is Slow And I Remain Bearish - Seeking Alpha