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Shares of Oil Tanker Ardmore Shipping Drop 10% on Earnings

By Tyler Crowe - May 5, 2020 at 12:04PM

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Even though the oil tanker beat earnings, its stock is still tumbling.

What happened

Shares of oil tanking company Ardmore Shipping Corporation (ASC 2.21%) are down 10.8% as of 11:00 a.m. EDT. The stock drop comes after the company reported earnings, but what is peculiar is that reported earnings weren't that bad.

So what

Oil tanking and shipping companies have been on a tear over the past few weeks. Not because they are moving products around the world, though; rather, oil tankers are becoming a storage option for crude oil and refined product inventories. The glut of product on the market and the limited storage options are partly to blame for why we saw crude oil prices drop below zero for the first time ever a couple of weeks ago.

An oil tanker on the water.

Image source: Getty Images.

This most recent earnings report from Ardmore was a reflection of the prior quarter, though. So instead of blowout earnings, this was a more typical report. Ardmore reported first-quarter net income of $6.5 million, or $0.20 per share. That was actually higher than analyst estimates of $0.14 per share for the quarter.

Now what

Management noted in its earnings release that it expects some better results in the coming quarter. Daily rates for the first quarter averaged $19,307 for its MR tankers. Since the end of the prior quarter, rates have increased drastically. Management noted that its three-week average rate is already up to $28,200 per day, and it priced a 55-day voyage at $72,000 per day just last week.

ASC Chart

ASC data by YCharts.

With all this extra revenue coming in the door, management's cash priorities are "fleet maintenance, financial strength, accretive growth and returning capital to shareholders. Consistent with this policy, the Company is not declaring a dividend for the first quarter of 2020."

That lack of dividend is probably the reason investors are selling off the stock today. While investors might look at the spike in share price and decide to hang on for the ride, the long-term shipping business has always been a challenging one. It's a cyclical industry with high debt loads and companies consistently growing the size of their fleets (even if that isn't the best move). Over the long haul (pun absolutely intended), shipping stocks haven't been wealth-compounding investments. For those looking to make a buy-and-hold decision, Ardmore probably isn't your best bet.

Tyler Crowe has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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Ardmore Shipping Corporation Stock Quote
Ardmore Shipping Corporation
ASC
$8.70 (2.21%) $0.19

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