Shares of DryShips (NASDAQ:DRYS) are up almost 100% in 2013 due to optimism that a shipping rate rebound will save this shipper from its large debt burdens. After the company's recent earnings release, it appeared Wall Street was initially giving the company a vote of confidence. As the trading day wore on, however, shares ended down and the worry set in. So just what is going on in DryShips' earnings that has the Street so confused?
A big concern surrounding DryShips is its ability to pay back its sizable debt in the future. With $33.8 million in debt payments for the quarter and only $13.4 million in earnings before interest, taxes, depreciation, and amortization (EBITDA) for the shipping segment, it's readily apparent that the company needs to make a lot more in profits to be able to keep up on debt payments. While it was able to restructure its largest debt facility in the quarter for more favorable terms, 67% of its shipping debt still has the original terms.
It appears that DryShips is trying to solve this very serious dilemma by issuing 5.9 million shares for $20.2 million during the quarter and exposing its fleet to spot rates in hopes of a rate rebound. In the video below, Motley Fool analyst Blake Bos explains why he thinks DryShips is a very dangerous investing trap.