Image source: Getty Images.
What happened
Oh, what a week for dry bulk shipping stocks. After a one-week gain of close to 1,500%(!), the Nasdaq halted trading on dry bulk shipper Dryships Inc.'s (DRYS) stock yesterday. Today, trading was reopened at 10:30 a.m. EST, and it looks as though cooler heads have prevailed: Shares of Dryships are down an incredible 72% as of 1:00 p.m. EST after the company announced a convoluted issuance of convertible stock and warrants.
Dryships isn't the only one, either. Shares of other notable bulk shipping stocks that have seen double-digit declines include Globus Maritime (GLBS -4.03%), Seaenergy Maritime (SHIP 8.59%), and Eagle Bulk Shipping (EGLE)
DRYS Price data by YCharts.
So what
You had to see this coming, right? Sure, there were a few fundamental drivers that should help dry bulk carriers, such as the rise in the Baltic Dry Index. According to Bloomberg, the Baltic Dry Index has risen from a low back in February of 291 -- the lowest in over five years -- to 1,145 today, and a decent chunk of that rise in the index has come in the past few weeks. It also helps that Dryships has recently sold some vessels in hopes of cleaning up its balance sheet.
When you combine this small sliver of news with the fact that all of these stocks have been beaten to a pulp in recent years and are very thinly traded stocks -- Dyships has done so many reverse stock splits this year that total shares outstanding have gone from 672 million to just 1.1 million -- then it makes these companies' stocks incredibly sensitive to price movements. Case and point was the past week and a half.
The big reason for today's decline came as Dryships announced a private stock issuance with Kalani Investments Limited where it will receive several convertible shares and warrants that will lead to gross proceeds today of $20 million, with the potential for an additional $80 million if all convertible shares and warrants are exercised. That amount of share dilution has investors bailing hard out of the stock and taking shares of the rest of the industry with it as everyone realizes the recent rise in the Baltic Dry Index doesn't mean these stocks are worth 2 to 15 times what they were a couple weeks ago.
Now what
Dry bulk shipping stocks has been a place for investor money to go and die for years now. After the Chinese commodity bubble popped back in 2011, shares of dry bulk carriers have been on the decline. So much so that even the massive rise in share prices recently is barely noticeable on a five-year stock chart.
Perhaps the recent uptick in Chinese demand for commodities and the Trump administration's promise to increase infrastructure spending will lead to some better results for all of these dry bulk carriers. However, every single one of them is dealing with large debt loads and no operational profits to speak of. With no way to cover their financial obligations, all of the companies here are at considerable financial risk.
These stocks have proven toxic for investors in the past, and even after the price movements over the past few days, there's no reason to think that's going to change anytime soon.
