DryShips Inc. (NASDAQ:DRYS) is a stock that’s been captivating the trading community, with a massive run higher from $3/share to over $100/share and then all the way back down again. The culprit responsible for this ridiculous movement? We look to a 1-for-1500 reverse split done in three stages that reduced the float of the stock to just 439.71k shares. That float has since expanded a bit, but is still extremely small.
The other major culprit was a gigantic jump in the Baltic Dry Index, which represents a measure of dry bulk shipping prices. What’s more, the listing has registered increased average transaction volume recently, with the past month seeing approaching 880% above its longer-run average levels. Traders should note this as important with a float in play that’s tiny — under 860K shares. This type of thing is something to watch out for: a mechanically driven price squeeze can result from this type of mix of small float and ramping attention from traders.
DryShips Inc. (NASDAQ:DRYS) bills itself as a company that provides seaborne dry cargo and offshore support services. The company operates through Drybulk and Offshore Support segments.
The Drybulk segment provides dry bulk commodities transportation services for the steel, electric utility, construction, and agri-food industries. The Offshore Support segment offers its services to the global offshore energy industry. As of March 31, 2016, it owned a fleet of 20 Panamax dry bulk carriers with a combined deadweight tonnage of approximately 1.5 million tons; and 6 offshore supply vessels comprising 2 platform supply and 4 oil spill recovery vessels.
The company was founded in 2004 and is based in Athens, Greece.
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One interesting recent note on the company is Morgan Stanley’s filing showing a 6% stake in the stock. To understand why one of the world’s biggest investment institutions might have a large position in this company, several things must be understood.
First off, the election of Donald Trump is a key driver here of the dramatic price squeeze we saw in DRYS in November. With the GOP preserving dominance in both the Senate and House in the US federal government, an enormous amount of speculation that the largest economy in the world is about to see a massive fiscal stimulus package centered around infrastructure upgrade has been unleashed across markets. For DRYS, the parallel point is that the Baltic Dry Index of shipping rates has soared in the past several weeks by as much as 50%.
Finally, the Hellenic Shipping News website put out a piece of analysis recently noting that “Capesize one-year time charter rates will double over the next five years from the lows of 2016. The reasons for a sharp contraction in the supply and demand gap are improving demand outlook coupled with a slowdown in vessel supply due to high scrapping and continued low deliveries along with scarce new-orders.” If you combine the two ideas, in theory, you have a smaller number of ships shipping at higher rates paired with a jolt of money for infrastructure build out in the US.
That means energy and materials. It also means inflation. Hence, we are seeing prices everything rise dramatically in the past two days, with copper exploding higher along with longer-term interest rates. The Baltic Dry Index (BDI) has moved in step. Shipping stocks are finally responding. Importantly, even though DRYS is carrying a mountain of debt with no cash, the stock was loaded with short interest and had a float of just under 500k shares.
The next key driver from here will likely be what sort of trade deals are actually struck linking the world’s largest economy in the US to other major trade centers. Trump has said he wants to renegotiate most major pacts and that will bear heavily on demand in the sector. That said, for investors, if you have any interest in building exposure in the space, there are likely better vehicles than DryShips Inc.
Currently trading at a market capitalization of $4.6M, DryShips Inc. has virtually no cash on the books, which is balanced by an appreciable load ($200.23M) of total accumulated debt. DRYS is making real money, with trailing 12-month revenues coming in at 66.05M. However, the company is seeing a major top line decline, with y/y quarterly revenues shrinking at -66%. All points suggest this is a struggling company in a red hot space. Short interest is likely high and we may see another squeeze, but the long-term picture is a very cloudy one. We will update the story again soon as developments transpire. For continuing coverage on shares of $DRYS stock, as well as our other hot stock picks, sign up for our free newsletter today and get our next hot stock pick!