DryShips: A traders dream come true?
Today's Financial News - Posted March 26, 2009
The market is giving us all sorts of profit-making opportunities. Over the past several days, shares of DryShips (NASDAQ:DRYS) have been all over the map. It is giving investors a shot at some hefty gains.
By Andrew Snyder, TodaysFinancialNews.com
Baltimore – (TFN): Not every investor has the stomach for soul-wrenching roller coasters that are teetering on the edge of bankruptcy. On one day these stocks could be worth billions of dollars, the next their prices could plummet on fears of insolvency. It is enough to unnerve even the strongest of speculators.
As this country’s economic fiasco unfolds, savvy traders are getting in on their fair share of the up-and-down action. One company capturing the attention of risk-taking investors is DryShips (NASDAQ:DRYS).
A chart of this stock’s trading action over just the past five days looks like the stormy, early-spring ocean waters the company’s ships are forced to battle. As every chunk of news hits the Street, shares rise and fall in spectacular order.
On Tuesday, shares were up by more than 15%.
On Wednesday, they dropped by more than 16%.
And today? So far they are up by 9%.
The action surrounds the company’s latest earnings report. As investors contemplate all the factors effecting DryShip’s future, shares represent the herd’s latest sentiment. The whipsaw action is creating plenty of trading opportunities.
Hold onto your stomach
Yesterday, the company announced it had swung to a billion-dollar first-quarter loss. Each share represented an $18.42 portion of the company’s red ink. At first glance, the figure looks like a deathblow for the debt-ridden shipping company. But dig a bit deeper and things do not look nearly as bad.
The turnaround from last year’s corresponding quarter – when the company reported earnings of $5.35 per share – comes thanks to a charge to its goodwill account due to the acquisition of Ocean Rig, the same deal that gives the company a shot at creaming its competitors. More on that in a second.
First, we need to look at the company’s debt. After all, if DryShips can’t remain solvent throughout the next year, the Ocean Rig deal won’t be worth a thing.
As I write, the company has $1.8 billion currently listed as short-term debt. The figure could be troubling if you do not believe it will be able to re-negotiate the terms of the liability.
But with news of debt waivers already in the works, few investors are worried about having to pay off the obligation this year. Instead, they follow the analysts and believe the company stands a chance of being debt free over the next several years.
If the company can claw its way out of the current collapse in the shipping industry and drastically reduce its debt over the next 36 months or so, it will be in a fantastic position to take advantage of its Ocean Rig subsidiary, which concentrates on offshore drilling.
By the time the world gets back on its economic two feet, ocean-based drilling will once again be a hot topic. As DryShips is hustling and bustling across the globe, it will also be involved in pulling expensive crude from the ground, giving the company multiple strong revenue streams.
The company’s executives are “cautiously optimistic” about its future. If you can stand the rough seas that lie ahead for the next six months or so, this one could pay off handsomely.
Shares of DryShips are trading for just over $5. Last May, they were trading for over $100. There’s room for upward growth.
This stock is a trader’s dream come true. Play it right and you could be buying a ship of your own.
Next Article: Is no news good news at Dyax Corp. (DYAX)?
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