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Here's Why DryShips Inc. Plunged a Stunning 99.9% in 2017

By Matthew DiLallo - Jan 8, 2018 at 10:00AM

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An insurmountable wave of dilution washed over this shipping stock last year.

What happened

Last year was an absolute disaster for investors in DryShips Inc. (DRYS). While the dry bulk shipping company staved off bankruptcy, that still didn't stop the stock from shedding nearly its entire value last year. Here's a look back at why shares plunged so deeply in 2017.

So what

DryShips entered 2017 with a sense of optimism after securing a comprehensive strategic repositioning transaction with its founder at the end of 2016. That deal provided the company with the credit it needed to fund operations as well as begin rebuilding its fleet, which asset sales decimated in previous few years after the company unloaded ships to pay down debt.

Oil tanker ship at sea on a background of sunset sky.

Image source: Getty Images.

However, instead of living within its meager means to slowly rebuild its fleet, DryShips quickly embarked on a buying binge that saw it spend hundreds of millions of dollars in just a few short months. The company paid for these vessels by selling a boatload of stock to an unaffiliated investment company that quickly unloaded them onto public market investors. Those stock sales weighed heavily on the share price, which led DryShips to enact a series of reverse stock splits to prop it back up. The company completed enough splits through the first half of last year that they had the accumulative effect of a 1-for-7,840 reverse split. To put the impact of the dilution and reverse splits into perspective, the company had more than 36.2 million shares outstanding at the end of last quarter compared to a split-adjusted 96 in the year-ago period. That jaw-dropping increase is the primary reason why the stock lost almost its entire value in 2017.

Now what

DryShips made one thing clear last year: It cared more about growing its fleet than creating value for investors. Thus, investors should steer clear of this stock even if it has since ended its dilutive ways. That's because it started borrowing money again, which is what caused its financial problems in the first place after it took on too much debt in expanding its fleet only to almost sink under that weight when conditions deteriorated. This company apparently hasn't learned from its history, which it appears to be on the path to ultimately repeat.

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