DryShips Deserves More Love 32 comments
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DryShips, Inc. (DRYS), the largest publicly traded dry bulk shipper, is trading at an embarrassing 3X earnings. That’s the kind of PE reserved for the near death stocks – ones that are bleeding money, no prospects, no growth, nada.
So what kind of growth did this dry shipper have to justify the PE of 3? A negative 60%? A negative 80%? Actually, last year DRYS earned 659% more than it did the previous year. Its revenues climbed 134.5%.
Must have been in a terrible industry, one that’s getting battered every day. The financials, for instance. Do they sell sub-prime? No, DRYS is in a fabulous business. Drys charters ships to those who want to haul iron, coal, and fertilizer, a business that is booming. Currently, their large Cape vessels command $125,000 dollars a day at a cost of under $7000 dollars a day. Talk about margins.
One way the investment community follows dry bulk shipping is the Baltic Dry Index [BDI]. The BDI is an index that compiles the rates shippers charge over 40 sea lanes. That index has recently been on fire, reflecting the sizeable and increasing rates dry bulkers can charge for their vessels.
The BDI has had a remarkable run this month...
...while DRYS has moved in the opposite direction.
So DRYS is not at all loved. In fact, 6 million shares of the 42 million shares out there are short!
Currently DRYS trades at $62. It’s forecast to earn $18 a share 2008. I think it will easily meet that and probably do better.
Disclosure: Author has a long position in DRYS
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This article has 32 comments:
I fully expect this stock to explode in 2008
Working against DRYS is its own CEO. The dude is a bit of a nutcase, lending less credibility to his business.
Its investment in RIG is also seen as a sign of weakness in his business. I disagree, he was swimming in cash from profits, and decided to put the money to use in another very profitable business.
I believe in DRYS...but if you are more not up for a wild ride, check out DSX. They have less debt and seem to fluctuate a lot less then DRYS.
Cheers!
The CEO has some ships in his personal portfolio and trades assets back and forth at his benefit.
He also owns a consulting firm that overcharges DRYS.
So many conflicts of interest.
And what does he say about it?
If YOU DON'T LIKE IT SELL THE STOCK.
And that's what people are doing.
so many scams and conflicts of interest
When stockholders complain the CEO says:
IF YOU DON'T LIKE IT, SELL YOUR SHARES
And that's what people have been doing
George is not going to koutou to the wallstreets kids. Its not in his nature, that's a given. Also realize China an India are nobodies fools, they'll try to circumvent all the greedy shipper/ironorers/coal... around the world,that's a given. Don't get to amped up on fast money, this is not going anywhere like $100+ untill the financial BS in the USA is x % cleared up, that's a given. Having said that, time is on the longs side, because ship building is two or more years out,component parts not/if/? available,financing for ships LOL, think about it. Who has or wants to underwrite shipbuilding(Bear Stearns LOL!!!!!!} for customers that are not going to be there in three years. Remember the time to strike is when the need is there, and it's coming sooner...... not later........... Do your DD and see what deal China does with Japan on coal ,the end of May. Set you alerts in Google and watch what doing on. And remember........... "There nobodies fools"
Good luck ,good DD,forget hope. ;)
If DRYS is a pile of crap, then I will keep buy these piles of crap and let the REAL stocks which meet the true description alone.
The reason the stock is down has to do with the beta of the stock and the way it pops up on screeners which hedgies who are panicing for ways to make money see that the stock is vulnerable and try to ride it down.
If you dont like the stock, then in the short term as George says, sell it and put the money in a market fund or a boring dividend paying, low margin DSX stock.
I like the risk and the prospects and will keep owning the shares for years into the future.
-Scott
growthportfolio
"the facebook of investing"
For us option traduz: try collars on this baby.
See for yourself, For the seven analysts that follow DRYS, the lowest EPS estimate is $16.56/share. Using the lowest estimate still yields a PE of 3.6. Not trusting others to do my homework, I did a detailed analysis of DRYS 2008 EPS. My conclusion is that there is better than a 60% chance that DRYS will earn between $16 and $20/share. So, I get a PE range of 3.0 to 3.6. This stock is cheap, cheap cheap....
Why is the stock now so cheap? The stock is cheap only because the beta for DRYS is 2.3. Traders are using this as a proxy for trading the market because they get more bang for the buck in the short term. That sword will cut both ways. If there is a market rally, DRYS will go up 2.3 times faster than the market.
The DRYS CEO has taken a lot bashing following a highly critical Forbes article. The guy is anything buy dumb. George Economou is an MIT graduate who has spent the last 20 years of his life in the shipping business. For any who care to do a wee bit of research will see that his foray into purchasing and leasing rigs for ultradeep water drilling makes perfect sense. These rigs are in extreme short short supply for the foreseeable future. The latest Ocean Rig setting price was $637,000/day for a 3-5 year contract. FYI, the operating cost for that rig is less than $150,000/day. There are enormous profits to be had from this industry. In addition, because this business does not at all correlate with the Dry Bulk shipping industry, the deep water drilling industry provides sensible diversification from the dry bulk shipping business.
The only thing that most people know about George Econonomou is what they read in that Forbes Hatchet-Job of an article which was written by a bush-league reporter who is simply trying to use sensationalism to promote his own care! DRYS traded for $131 in November, given that 2008 is shaping up to be a stellar year for dry bulk shippers, DRYS should at least revisit that price this year.
Man there are a huge number of bashers here. If you believe what Forbes, the mouth piece for the hedge funds, then you will believe anything.
You can see an increase in the number of hired bashers as the number of shorts increase. They try and drive the price into the ground with market manipulation and bashers and their financial media. The only problem with this shorted position is that the shipping rates (BDI) have been rising through the roof. How do hedge funds handle this one? Well they don't back out they just keep shorting giving the historical unlimited amount of funds that they can borrow. The credit window is closing and within 6 months the naked short route will start to close.
With all the banks in trouble why in hell would they short a company with huge earnings growth and management with a history of making fantastic deals in favor of the company?
Who you gonna believe the financial or the sheep herders?
-Scott
growthportfolio
"the facebook of investing"
stockcharts.com/h-sc/u...=$INDU&p=60&yr...
Look for yourself. This URL is a link to a stockcharts.com 60 minute chart of DRYS (solid line) vs. S$P 500 (dashed line). Can you see that they are moving like sychronized swimmers? That is because short term traders are using DRYS as a vehicle to trade the ups and downs of the market. They do this because DRYS has a very high BETA, so they get more bang for the buck. Your eyes do not deceive you. The price swings have nothing at all to do with the business fundamentals.
OOPs.. I linked to the wrong chart. This is the right link.. My argument is the same..
You will see the stock track back to $20 and even to $10. And once they announce the restatement in earnings, or heaven forbid the loss, you'll see it trade even lower.
Who the hell even talked about "dry bulk shippers" before Cramer filled your head with such garbage?
Wait, wait...I'm having a flashback...ACLN/ASW..... something is too good to be true...it generally is. Some folks here will learn the hard way.
He may be crazy like a fox, but there's been a lot of EGOcentric CEO's who were born on 3rd base and thought they hit a home run. I think this guy could sink DRYS even if they earned %1300 more than the last year. Just wait until he encounters a real challenge.
There are better stocks out there lead by stable, level-headed professional managers. DRYS doesn’t seem to be one of them.
DRYS is not an investment, it’s a speculation that the guy in charge isn’t going to do something irrational (like gouge profits to his own consulting company).
Do you have any evidence of this?? It is pretty hard to rig the earnings for a company which has a business model that is as simple as the model used by all of the dry bulk shippers. geez.. the daily charter rates are posted every day.. the cost of operations can easily be compared between companies because they all site that information. What's left.. depreciation.. pretty straight forward.. and iterest on the dept.. 6.5% X current debt load provides a very close annual estimate of the debt. These companies are not like banks or investment brokers who employ complex models and who use 30:1 leverage schemes. But, if you have any proof that the earnings quoted by GE are wrong, bring in on!!
As far as the industry - any quick web search will tell you that iron ore, coal, and fertilizer are all in huge bull markets right now.
Maybe people think that China is done building, and no longer needs dry goods?
I've made great money with DRYS and Excel Maritime (EXM) by trading the stock over relatively short periods of time, and I am going to again. Economou said late last year that 2008 would be a year in which DRYS would be operating wholly in the spot market because he believed that there was greater opportunity there than in the time charter market. That high BETA is earned because spot prices are notoriously volatile. But if Economou is right - and I think he's a sly old devil who is not in business to lose money - then DRYS should return - perhaps by mid-year - to its previously lofty shareprice or 131 and change. These current prices are sensational for buying in, but if you do not have the stomach for risk, and if you are more used to writing on the Yahoo BBs, then stay away from DRYS and stay away from here.