DryShips Inc. (NASDAQ:DRYS) has taken investors on a wild ride this year, and October was no exception as a combination of factors drove the stock up more than 65%. Though, shares have still practically lost all their value this year due to a flood of dilutive stock sales. Further, October's optimism could quickly fade if the momentum that fueled last month's buying abates.
One of the primary fuels of DryShips' surge last month was the company's decision to curb its dilutive stock sales and focus on increasing shareholder value. The company's CEO put his own money on the line to back that effort after investing $99.2 million into a rights offering, which gave him a 69.5% stake in the company. Further, he agreed not to sell any shares for at least six months.
In addition to that insider buying, another fuel driving DryShips' rebound was the continued improvement of the Baltic Dry Index (BDI), which gauges the rate ships charge to move dry bulk goods. According to Bloomberg data, the BDI rose from around 1,300 at the beginning of the month to more than 1,550 at its peak before ending the month at just over 1,534. That put its year-to-date gain at more than 50% and suggests that DryShips can collect higher charter rates for its dry bulk vessels, which should improve profitability.
The rise in the BDI, when combined with the insider buying, is starting to gain DryShips some fans in the financial press. Both Forbes and The Street.com published bullish articles on the stock last month, though both by the same author. In the Forbes piece, for example, the author made the case that DryShips currently trades at a discount to its net asset value, which the writer believes will "narrow as DRYS proves to Wall Street that its dilute-and-reverse split ways have ended." Meanwhile, the contributor made DryShips the "trade of the week" over at TheStreet. That said, DryShips has yet to draw the attention of Wall Street since no analyst currently covers the company.
The improvement in the BDI is worth noting because it suggests that shipping rates are on the rise, which could help DryShips finally start making money again. That said, these rates are notoriously volatile and could crash at the first ripple of a slowdown in the global economy. Because of that, DryShips stock could quickly give back last month's gains. Add to that the fact that the company's CEO could dump the stock he bought in a couple of months, and it's all the more reason why investors should steer clear of this volatile shipping stock.
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