DryShips: Clear Sailing Or Will It Sink Again?

DryShips Inc. DRYS shares have once again caught fire as one of the most volatile names in the market over the past year is on the move once again. This time, DryShip stock is up 55 percent in five days.

These types of moves have become par for the DryShips course in recent months. DryShips has had a series of massive rallies and sell-offs, none more dramatic than its 2,500 percent rally in two weeks back in November 2016.

Historic Dilution

While some traders believe the recent 55-percent gain just the latest in a series of spikes and crashed for DryShips, other analysts argue that DryShips has completed its aggressive, dilutive spending spree and is finally free to trade on the strength (or lack thereof) of its fundamental picture.

In recent years, DryShips has undergone a series of reverse stock splits in an effort to maintain the $1 minimum listing price on the Nasdaq and raise funding. All together a single share of DryShips today would have represented 11.6 million shares of stock prior to the splits. Adjusted for the splits, DryShips' share price is down more than 99.9 percent in the past 12 months.

Recklessness Vs. Opportunism

DryShips management was selling shares hand over fist to raise $720 million in equity to purchase 17 new ships for its fleet. It didn’t help that much of the new equity came from an entity called Kalani Investments, about which little information was know.

Forbes contributor Jim Collins now says that DryShip’s current fleet puts its net asset value at above $8 per share, well above its current share price of under $5 per share.

DryShips A Long-Term Play?

If Collins’ calculations are correct, there’s nothing stopping a further rally in DryShips shares other than market skepticism of company management or a breakdown in shipping market fundamentals.

At this point, it’s hard to fault investors for their skepticism. The company has rewarded patient investors with 99.9 percent dilution, and SEC investigation and a series of investor lawsuits. DryShips may be undervalued, but at this point it's undervalued for several good reasons. The stock has plenty of potential upside, but it has a long way to go to win back the trust of the market.

Joel Elconin contributed to this story.

Related Link: The DryShips Story, Continued