DryShips: Reverse Split = Sell!

| About: DryShips Inc. (DRYS)

Summary

Company announces 1 for 7 reverse split.

Shares plunge to new 52-week low.

The worst is yet to come.

After the bell on Tuesday, shares of DryShips (DRYS) plunged after announcing a reverse split. If this kind of stock transaction is unfamiliar to you, then you haven't been following this company lately. The shipping name continues to be the best short idea in the market currently, and a further plunge in shares would not be a surprise. Here's the key news:

The reverse stock split will take effect, and the Company's common shares will begin trading on a split-adjusted basis on the Nasdaq Capital Market as of the opening of trading on July 21, 2017, under the existing trading symbol "DRYS". The new CUSIP number for the common shares following the reverse stock split is Y2109Q705.

When the reverse stock split becomes effective, every seven shares of the Company's issued common stock will be automatically combined into one share of common stock. As of the date of this press release, the Company had 36,296,095 common shares issued and outstanding. Effecting the reverse stock split will reduce the number of issued and outstanding common shares to approximately 5.2 million shares.

The magical number this time is a 1 for 7 reverse split, which will take place later this week. It was just a month ago when the company announced its latest reverse split. We can now add this to the list below, making this the 8th reverse split since early 2016, four of which have come in just the last three and a half months:

  • March 11, 2016: 1 for 25.
  • August 15, 2016: 1 for 4.
  • November 1, 2016: 1 for 15.
  • January 23, 2017: 1 for 8.
  • April 11, 2017: 1 for 4.
  • May 11, 2017: 1 for 7.
  • June 22, 2017: 1 for 5.
  • July 21, 2017: 1 for 7.

Currently, shares are down 27% in the after-hours session, trading for just over 60 cents a share. At that price, shares would trade on a post-split basis for more than $4 each. However, we usually see the share price fall once these reverse splits take place. This will be especially true if Kalani sales continue this week, with no major lawsuit news coming.

At the end of last week, there was almost $75 million in the current Kalani deal left. Given low trading volumes this week, I would think that maybe $3 million worth of shares will be sold prior to Friday, so maybe 6 million shares at 50 cents a pop. That would mean an outstanding share count of about 6 million after the reverse split and would leave $72 million on the Kalani deal. That's at least 18 million shares to be sold at $4, and many more shares to be sold if the sales price is much lower, which it usually is. Thus, this low float stock after Friday will continue to see tremendous dilution without any stoppage from legal proceedings, so investors could be diluted another 3 or 4 times over, at the least. This stock will continue to fall unless the status quo changes.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

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