Since Donald Trump’s upset victory in the election, there have been some surprising moves in the markets. But no one expected DryShips, Inc., a stock down at record lows just a couple weeks ago, to surge almost 2500 percent. As DryShips continues its meteoric rise, investors continue to chase the momentum. But can it last? And what started this rocket?
Stock For DryShips Skyrocketed To 2500 Percent. What Happens Next?
DryShips, Inc. has been a yuge surprise since the election results. But it’s not just DryShips. In yesterday’s Capitalist newsletter, our financial experts advised traders to buy on all Greek Shipping companies. DryShips just happens to lead the pack. So what’s going on that the sector is booming? Is it really all roses or should investors be skeptical?
Honestly … it’s a little of column A, a little of column B.
Let me explain.
There’s a lot to like here. For example, the fact that a stock which was $5 just a couple weeks ago is now at $115. That can be seductive to traders. It has a ton of momentum. And Donald Trump’s (in theory) isolationist policies mean higher costs for imports, which mean higher fees for shipping those dry goods. The Baltic Dry Index (which reflects relative pricing strength that dry bulk shippers are able to charge for shipping goods across the ocean) has a new high of 1,084 – up 19 percent from before the election and 30 percent over the last two weeks.
But there’s plenty to be wary of, too.
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DryShips is a company which was considering bankruptcy just a couple months ago. In fact, the company has been in default for several quarters, now. The shipper was unable to pay debt instruments past due, and suspended payment on others. Bankruptcy was a very real option. DryShips then did two reverse stock splits, consolidating first 1:4 in August, meaning every 4 shares were consolidated into one share worth 4 times the price. Then, two weeks ago, the company did a 1:15 split, consolidating every 60 shares into 1, and squeezing out everyone who was selling the company and predicting bankruptcy.
Now the company is riding high, but can it last? Much of DryShip’s fleet has been sold off to cover debt. There are just 13 Panamax carriers left in the fleet, down from 40 just over a year ago. And several ships are sitting stacked, collecting dust. While the company can absolutely put the ships to use, will there be cargo for them? Just because the stock is soaring doesn’t mean the company is fighting off clients, simply that investors are clamoring over shares. Most likely, the company will have a secondary offering to take advantage of the situation, causing a huge devaluation in share price.
On top of this company sits Greek shipping magnate, George Economou, who is notorious for looking out solely for himself and his friends and family rather than shareholders and outsiders. Economou has a history of shady dealings where he sells low and buys high through other companies he or his family have stakes in, resulting in huge windfalls for himself. There’s no guarantee that happens here, but a pattern definitely exists. Even with its huge surge up the market, DryShips is still down more than 75 percent on the year. It takes a lot of mistakes for share price to drop from more than $250 a share to $5 a share in six months.
Check out DryShips stock as of February 3,2017 from ClayTrader Video Charts:
The bottom line is, as exciting as this ride has been, it may not end well. Momentum plays like this can collapse just as quickly as they build up. For the short term, DryShips, Inc. (DRYS) is worth going with the crowd. However, for a long term play, investors should wait for the stock to level off for a couple days and expect shares to drop back down to reality.
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