Bash My Stock: DryShips

The concept here is simple: take a well-liked company on Motley Fool CAPS and completely debunk the notion that it's worth buying. Does this mean after I put a company through the wringer that it's worth selling? Maybe, maybe not -- that's up to you to decide. The point of "Bash My Stock" is to expose the fact that there's another side to every trade, and this series will attempt to look at the bearish view of why a stock might not be such a great value after all. Today I suggest we take a closer look at DryShips (Nasdaq: DRYS  ) .

DryShips owns and operates a fleet of 36 drybulk carriers, as well as nine oil drilling platforms, through its majority-owned subsidiary Ocean Rig UDW. Well off its pre-2008 crash highs of $120, investors continue to hold out hope that the company can once again return to its highly profitable ways. It's only a three-star stock on Motley Fool CAPS,b ut of the 3,298 participants to weigh in on DryShips, a whopping 2,941 of them rated it as an outperform. Well, optimists, it's time for me to pop your bubble and bash your stock.

DryShips is really a double-whammy candidate if you think about it.

First, it's based in Greece, and the daily discussions revolving around what seems like an inevitable Greek default is doing little to help out DryShips and Greek shippers Diana Shipping (NYSE: DSX  ) and Navios Maritime (NYSE: NM  ) . A Greek default may not seem as if it would have a direct effect on the daily operations of a company like DryShips, but considering that DryShips carries $3.8 billion in debt on its balance sheet, the ability to refinance that debt, finance new ship purchases, or even issue new debt becomes compromised as credit markets tighten and banks become less willing to lend.

Secondly, DryShips is getting no help from the Baltic Dry Index, which is a measure of drybulk supply and demand and helps determine the charter rates that it's able to negotiate in its lease contracts. Global slowdown worries and a glut of competition from the likes of Genco Shipping & Trading (NYSE: GNK  ) and Excel Maritime (NYSE: EXM  ) , to name a few, have put rates at levels not seen regularly since 2005. As Deutsche Bank recently noted, even a minor rebound in the BDI has to be taken with a grain of salt. Although it was good to see iron ore shipments increase to China, supply there remains very high.

So really, what's worse than being in the highly competitive and currently unprofitable shipping sector? The answer is being a Greek shipper -- the aforementioned double-whammy.

If that wasn't enough to make you steer clear of this speculative company, DryShips also operates one of the oldest fleets of its peers. Older ships often mean a greater amount of necessary repairs and higher levels of built-in depreciation. The company's announced buyout of OceanFreight (Nasdaq: OCNF  ) should allay some of those problems, since OceanFreight has a fresher fleet, but it still doesn't solve DryShips' primary problem of falling charter rates and its pre-existing older fleet.

Let's face it, folks: The days of high margins and solid dividends from shippers are gone. The sector could come roaring back, but it will take years, if not a full decade, for the sector to work out its kinks and for weaker hands to fold. DryShips is staring down $740 million in debt repayments this year, $584 million in 2013, and a whopping $824 million in 2014. Godspeed, DryShips. I don't see you surviving.

Now it's time for you to weigh in on DryShips. Please take a moment to vote in the poll below whether you're a buyer or seller of DryShips, and weigh in with your reasoning in the comments section/ Also consider adding DryShips to your watchlist to keep track of this highly volatile shipper.

Fool contributor Sean Williams has no material interest in any companies mentioned in this article. He and the water have always had a love-hate relationship. You can follow him on CAPS under the screen name TMFUltraLong. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy complete with iceberg detection devices.


Read/Post Comments (6) | Recommend This Article (2)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On October 05, 2011, at 7:44 PM, 2forward1back wrote:

    I try never to shoot the messenger but for 3 days this week, Monday, Tuesday and Wednesday, 3 different writers here at MotleyFool have tried to take DRYS to task with some facts and much inuendo and and a good deal of speculation culminating in 'devil beware' conclusions.

    At least you, Sean have given your readers a chance to poll our judgement of DRYS. Thanks for that, if nothing else... nice day by you.

  • Report this Comment On October 05, 2011, at 7:56 PM, imacg5 wrote:

    "DryShips also operates one of the oldest fleets of its peers."

    Not even close to being accurate!

    I can give you a hundred reasons to avoid buying DRYS, but the age of their fleet is not one of them.

  • Report this Comment On October 06, 2011, at 7:11 AM, jaketen2001 wrote:

    There is a reason there are a bunch of Greek shipping companies. I don't know what it is, and Sean doesn't either.

  • Report this Comment On October 06, 2011, at 7:50 AM, hogger219 wrote:

    This is the one of the problems in the market today. GIve anyone an open forum to spread half truths and innuendo to fulfill their own bearish agenda.

    So many false statements in this.

    DRYS could see OceanRig outright, payoff half of DRYS debt, throw 200 million at the tanker business and spin it off, and buy back another 200-300 million in stock.

    Amount relating to principal payments this year is also false.

  • Report this Comment On October 08, 2011, at 3:57 AM, TMFUltraLong wrote:

    Hogger219,

    The company's Ocean Rig business is the only reason this company has any positive value. If it dumps the drilling, the negative equity left would scare the remaining investors to the hills.

    As for the debt repayment schedule, read it for yourself on DryShips IR page. Download their 2010 annual report in PDF format, page 189 of 907.

    http://dryships.irwebpage.com/files/dryships20F2010.pdf

    TMFUltraLong

  • Report this Comment On October 08, 2011, at 8:02 AM, torpex77 wrote:

    The CEO is not "shareholder friendly" (and that may be an understatement).

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