DryShips Inc. Plunges After Yet Another Reverse Split

The diversified shipping company is bound and determined to counteract dilation and get its stock price out of the single digits.

Matthew DiLallo
Matthew DiLallo
Jun 19, 2017 at 11:22AM

What happened

Shares of DryShips (NASDAQ:DRYS) plummeted more than 30% by 11:15 a.m. EDT on Monday morning after the shipping company announced another reverse stock split.

So what

DryShips said it would enact a 1-for-5 reserve stock split that will go into effect on June 22. As a result, the company's outstanding shares will drop from 24.1 million to 4.8 million. This split is the company's second in the past month, with the company completing a 1-for-7 reverse split in early May.

A shipwreck at sunset.

Image source: Getty Images.

What's worth noting about that last transaction is that it took the company's outstanding share count from 65.6 million down to 9.6 million shares. However, the share count has more than doubled since that time because the company has sold additional shares as it continues its highly dilutive private stock offerings to raise capital so it can rebuild its fleet. These latest shares are part of the company's $226.4 million stock purchase agreement with Kalani Investments Limited and follow two separate $200 million offerings the company completed with Kalani earlier this year. This dilution continues to overwhelm the stock, which is down more than 99% this year because the company flooded the market with more new shares than it could handle. DryShips has tried to counteract this dizzying dilution by completing several reverse splits over the past year, which had amounted to a cumulative 1-for-48,000 through the end of the first quarter.

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Now what

DryShips continues its value-destroying pattern of selling stock no matter the price -- causing the price to plunge -- that it tries to counteract with reverses splits to boost shares back into the mid-single-digits, only to repeat the cycle. It's the opposite of what a company focused on creating value would do. It's why investors who value their money should steer clear of DryShips' stock despite the growth it anticipates because there's no guarantee it will materialize -- or that the company won't squander the opportunity.