DryShips Shares Surged: What You Need to Know

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Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of Greek shipper DryShips (Nasdaq: DRYS  ) caught a nice tailwind today, rising as much as 18% in intraday trading on some positive news from majority-owned ocean driller, Ocean Rig (Nasdaq: ORIG  ) .

So what: Though DryShips spun off Ocean Rig as a standalone company, it still owns the majority of the driller. That means that good news for Ocean Rig is good news for DryShips.

Today, Ocean Rig announced that it had won a three-year drilling contract for its Leiv Eiriksson semi-submersible that could represent as much as $653 million in revenue backlog. That's significant for a company that reported total revenue of $462 million for the first nine months of 2011 and had a backlog of $1.79 billion as of Sept. 30 of last year.

Now what: As we look at this big jump for DryShips, an obvious question is why that stock is going sky-high but Ocean Rig was up a mere 2% today. Part of the answer is that for many traders, DryShips is simply where the action is at. The stock has been hugely volatile for years and has massive trading volume. The stock's three-month average daily volume is 4.6 million shares, and today it's seen an impressive 27.7 million shares change hands. Ocean Rig, on the other hand, has a three-month average of just 139,000 shares, and it traded just slightly less than that today. Even after adjusting for the differences in share prices, the trading volume of DryShips still vastly outweighs that of Ocean Rig.

In other words, the size of the stock's move today may have more to do with the stock's volatility than the value of this specific announcement. It's simply a very volatile stock that's bound to react sharply to news in either direction.

That said, though, there is some legitimacy to the move as the shipper's stock has been brutally beaten down and currently trades at valuation levels well below that of Ocean Rig. With a lower relative valuation and more pessimism -- and therefore short-selling -- associated with DryShips, there are some good reasons for the stock to react more drastically to significant news.

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Fool contributor Matt Koppenheffer has no financial interest in any of the companies mentioned. You can check out what Matt is keeping an eye on by visiting his CAPS portfolio, or you can follow Matt on Twitter, @KoppTheFool, or on Facebook. The Fool's disclosure policy prefers dividends over a sharp stick in the eye.

Read/Post Comments (5) | Recommend This Article (10)

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 February 06, 2012, at 7:55 PM, k1watson wrote:

    This article is terrible, horribly inaccurate and without the least bit of background or research. The author claims that Dry Ships stock rose today because of the contract for drilling rig Leiv Eirikkson.

    Would the author like to explain why Diana Shipping was up 7.96% today, why Excel Maritime was up 25.97%. Or how about Genco Shipping up 12.72%. We can even keep going. TBSI was up 75.42% today, Eagle shipping was up 11.03%.

    None of these companies have anything to do with Ocean Rig and do not own drilling rigs. Quite obviously something caused the shipping industry to surge today. Maybe you should try to figure out why before publishing something so inaccurate and dishonest. This reflects very poorly on your company.

  • Report this Comment On February 06, 2012, at 10:52 PM, vidar712 wrote:

    It can't be the Baltic Dry Index, it looks like that is falling through the floor.

    Or, maybe they are up because it stopped falling?

  • Report this Comment On February 06, 2012, at 11:49 PM, k1watson wrote:

    I don't know but the volume for the dry ship industry in general was huge today. I'm wondering if the news out of Greece (beginning to agree to austerity measures) might have caused the heavy hitters to get into the sector. Of course that's just a guess but it's a lot better than the nonsense written in The Motley Fool article above.

  • Report this Comment On February 07, 2012, at 12:21 AM, harkvasa wrote:

    Dry Ship owns 75% of Ocean Rig.

    Market value of Ocean Rig is $2.1 Billion

    So SRYS owns $1.6 Billion of ORiga which works out to $4 per share of ORIG for each DRYS share

    Theerefore DRYS should rise to $5 per share and may be investors are beginning to realize that DRYS is selling too cheap .

  • Report this Comment On February 07, 2012, at 2:25 PM, paldad2000 wrote:

    Nov it was sell for 2.99 and July 1 for 4.31. Yes it "surged from 1.97 to 2.75 or so but it has been a crap stock.

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Related Tickers

10/21/2016 3:59 PM
DRYS $0.36 Down -0.03 -7.23%
DryShips CAPS Rating: **
ORIG $0.92 Up +0.03 +2.84%
Ocean Rig UDW CAPS Rating: No stars