DryShips Needs A Transformation, Not An Earnings Beat

After a strong finish to 2016, the Baltic Dry Index (BDI) has had a rough start to 2017. So far on the year, the BDI is down 23.5 percent. But what does that decline mean for DryShips Inc. DRYS and other shipping stocks?

DryShips is expected to report Q4 earnings after the market close on Tuesday, but traders looking to interpret the BDI to gain some insight into what DryShips' quarter was like may be barking up the wrong tree.

The BDI is a direct daily measure of shipping rates, which theoretically indicates how good the shipping business is going. The Baltic Exchange contacts drybulk shippers on a daily basis to get current rates for 22 different shipping routes around the world, which it then compiles into the BDI. The rates include prices for four different types of ships as well: Capemax, Panamax, Handymax and Handysize.

When the BDI goes up, it typically means higher margins and profits for shipping stocks.

Unfortunately for investors, DryShips stock has been anything but business as usual in recent months.

The company is teetering on the brink of bankruptcy due to its massive debt load and its inability to turn a profit. The stock is one of the most heavily-shorted stocks on the market and now has a minuscule float after a series of reverse stock splits in the past year.

Until DryShips can demonstrate a long-term path to profitability and viability, its stock will likely continue to be an instrument for day traders rather than a long-term investment option.

In other words, a rising BDI is good news for DryShips. However, at this point, it may be the equivalent to giving a gunshot victim a band-aid.

Update: DryShips Reports Q4 EPS $(54.16) vs. Prior Year Quarter $(9,518), Rev. 12.8M vs. Prior Year Quarter $23.76M