What’s behind this obscure shipping stock’s massive 1600% (yes, that’s sixteen-hundred percent) surge? It’s a confluence of a few factors.
Firstly, DRYS is working off of a very low starting share price. The stock has actually completed not one, not two, but three giant reverse splits this year in order to buoy its rapidly declining stock price. These moves include 1-for-25, 1-for-4, and 1-for-15 splits since mid-March.
If not for those splits, DRYS shares would be trading around 5 cents per share right now.
The next factor working on DRYS’ favor is the most obvious one: Donald Trump was elected president. Trump has made no secret of his plans to renegotiate trade agreements and try to spur more economic activity. A popular economic gauge, the Baltic Dry Index, has surged 25% in response, and most cargo shipping companies are getting a big bump as a result (although none as big as DRYS).
The final catalyst for DRYS’ price explosion is its ongoing debt negotiations with creditors. The company is precariously close to bankruptcy (as its big year-to-date price decline indicates), and has reached a make-or-break point. From the Motley Fool:
[The] company is actively working with lenders to restructure its bank credit facilities. Three of them have matured, and the company has yet to make final balloon payments, instead suspending principal and interest payments to preserve liquidity. However, the company has been actively selling off vessels to pay down its revolving credit facilities. For example, at the end of October, it announced the sale of five vessels for $29.4 million. Given the steps it is taking to address its credit facilities, there’s some growing optimism in the market that DryShips can restructure in a way other than going through bankruptcy.
So based upon Trump’s surprise win, and expectations for rising trade and higher shipping activity, investors are betting that DRYS can avoid bankruptcy and return its balance sheet to some semblance of normalcy.
I wouldn’t hold my breath for that. Investors should avoid this sinking ship at all costs.
DryShips shares were up $37.13 (+86.63%) to $79.99 in Tuesday afternoon trading. Year-to-date, however, DRYS is still down nearly 72%.