Vincent Fernando

Never Enough Lessons on Forward P/E

I simply don't have the time to do a full analysis on DRYS. I also tend to not make full recommendations for stocks online. The decision making process would also probably take more than a blog post to fully explain and defend. My goal with the post was to try and cut through a lot of false reasoning when it comes to arguments for or against stocks. Criticism is healthy for thought.

As for how might someone value dryships? Well let's think as if one were actually in the industry looking to expand your fleet. An industry player can either buy ships in the market or buy a company that owns ships. If you get far more ships for your buck buying DRYS than buying int he market, then I think that's a decent starting point, but we must be very careful since even dry bulk (and rig) asset prices can fluctuate quite substantially. Thinking from an industry buyer perspective would be simply thinking about the value of a dry bulk company as the actual players in the industry do. I promise you they don't forecast 1 year of earnings and then calculate a multiple. Wall street analysts frequently do, and companies put simple multiples in their investor presentations, but trust me actual shipping players don't make decisions like this. DRYS has rigs and bulk vessels, plus perhaps some additional value from its organization and customer relationships. But you would probably want to be getting DRYS at a price where you were getting its assets at a good discount to market prices, as this would give you some cushion. (these asset prices can fall, so good to have a margin of safety). Just don't forget that DRYS has a lot of debt, so you would want your adjusted NAV (adjusted to include a margin of safety vs. asset price declines) to be much higher than Enterprise Value (not market cap).