Dry bulk stocks have struggled this year for a number of reasons, including over building and weak economic conditions. Notably, Diana Shipping (NYSE:DSX) has held up more than most because of its high contract coverage at above market shipping rates and solid financial position. At the end of last quarter, the company had a net cash position, a very rare feat for dry bulk stocks these days as the industry has been suffering.
The trailing valuation metrics and analysts suggest that the stock is undervalued. On a forward basis, it is suggested that Diana Shipping is overvalued but I wouldn't pay much attention to the forward valuation metric in this case as the valuations are skewed because of the carnage in the industry. As the economic conditions continue improving some of the excess supply should be put to work which should improve rates. This may take a year or two but at the end of the day, commodities have to be transported across the oceans and there is no more cost effective way to do this than through dry bulk vessels. Below is an in depth look at the valuation metrics and stock chart.
Valuation: Diana Shipping's trailing 5 year valuation metrics suggest that the stock is undervalued as all of the metrics are below their respective 5 year averages. Diana Shipping's current P/B ratio is 0.5 and it has averaged 1.4 over the past 5 years with a high of 2.9 and low of 0.5. Diana Shipping's current P/S ratio is 2.5 and it has averaged 5.5 over the past 5 years with a high of 14.6 and low of 2.2. Diana Shipping's current P/E ratio is 5.9 and it has averaged 8.8 over the past 5 years with a high of 17.6 and low of 4.3.
Price Target: The consensus price target for the analysts who follow Diana Shipping is $10. That is upside of 28% from today's stock price of $7.8 and suggests that the stock has room to run from these levels.
Forward Valuation: Diana Shipping is currently trading at about $8 a share with analysts expecting EPS of $0.22 next year for a forward P/E ratio of 35.5. Taking a look at the company's publicly traded comparisons will give us a better idea of the stock's relative valuation. DryShips (NASDAQ:DRYS) is currently trading at about $3 a share with analysts expecting EPS of $0.38 next year, an earnings increase of 9% y/y, for a forward P/E ratio of 8.3. Navios Maritime (NYSE:NM) is currently trading at about $4 a share with analysts expecting EPS of $0.55 next year, an earnings increase of 10% y/y, for a forward P/E ratio of 7.1. Teekay (NYSE:TK) is currently trading at about $36 a share with analysts expecting EPS of $0.5 next year for a forward P/E ratio of 71.8. The mean forward P/E of Diana Shipping's competitors is 29 which suggests that Diana Shipping is overvalued relative to its publicly traded competitors.
Earnings Estimates: Diana Shipping has beat EPS estimates 3 times in the past 4 quarters. The company's EPS figures have come in between -2 cents and 3 cents from consensus estimates or about -5.6% to 7.9% from analyst estimates. The company has reported earnings that have differed from analyst estimates by a wide margin which suggests that the stock may experience upside from earnings surprises.
Price Action: Diana Shipping is down 30.1% over the past year, underperforming the S&P 500, which is up 5.1%. Looking at the technicals, the stock is currently below its 50 day moving average, which sits at $8.62 and below its 200 day moving average, which sits at $8.41.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.