What happened
Shares of DryShips (DRYS +0.00%) continued their seemingly never-ending plunge today, dropping 22% as of 10:45 a.m. EDT. The culprit was the completion of another reverse split, which has unleashed a torrent of selling this week that has pushed the stock down more than 60% over the past five trading days.
So what
In conjunction with completing another reverse split, DryShips also updated its key financial information to reflect the split:
- Cash and cash equivalents: approximately $113.1 million (or $20.01 per share).
- Book value of vessels, net: approximately $529.1 million (or $93.61 per share).
- Debt outstanding balance: approximately $200.0 million.
- Equity, book value: approximately $442.2 million (or $78.23 per share).
- Number of shares outstanding: 5,652,257.
Given the company's current price of more than $3 per share, these figures seem to suggest that the stock is significantly undervalued. That's certainly what management hopes that shareholders will focus on. because that will take the attention away from the last number on that list, which is what it's trying to mask with all these reverse splits.
That's because the share count has been rocketing higher this year as a result of DryShips' decision to continue issuing a dizzying amount of new shares that it uses to raise cash and pay for new vessels. For example, when DryShips announced its latest reverse split earlier this week, it had 24 million shares outstanding. That said, it noted that after completing the 1-for-5 split that it should have approximately 4.8 million shares. However, as its updated share count shows, the company has issued nearly 1 million new shares over just the past couple of days, even as its stock continued its downward spiral. That's no surprise considering that the company's share count has been on an upward climb between reverse splits. For example, the share count had risen from 9.6 million after its last split in mid-May to 24 million when it announced its most recent split a few days ago.
Now what
DryShips wants investors to believe that it's creating value via its ship-buying binge. However, all it's doing is eroding value by selling stock at ever-lower prices. Until that selling ceases, it's unlikely that DryShips' stock will stop sinking.
