Dryships (DRYS, Financial), a leading player in the shipping industry, performed exceedingly well in 2013 as the stock had picked up almost 140%. Anyhow as I would see it, investors should now book their gains and consider selling Dryships.
Dryships reported a blended quarter as it figured out how to beat estimates on revenue estimate however missed out on earnings. Revenue was up from last year and comprehensively beat the consensus estimate. However a gander at the bottom line shows that all is not well for Dryships. Dryships' performance on the bottom line was disappointing.
The crumbling of the bottom line could be normal as Dryships is confronting a heavier obligation load now. The organization's obligation to-underwriting degree hopped from 0.52 to 0.58 in the previous quarter. This indicates that Dryships will need to pay more interest going ahead because of increased obligation. Furthermore, Dryships saw a year-over-year addition of 6.3% in expenses. Thus, rising expenses and a worsening obligation situation could strain Dryships' cash reserves later on.
Rising obligation is an enormous stress
Dryships has picked up this year because of investor optimism that has been based upon the conviction that the organization is generally positioned to exploit the late restoration in shipping rates. Anyhow, Dryships may not have the capacity to exploit this restoration in shipping rates as it may not create enough cash to pay off its gigantic obligation.
As per Yahoo! Fund, Dryships' aggregate obligation in the most late quarter was an incredible $5.30 billion. This is surely massive when you consider that Dryships had just $506 million in cash at the end of the last quarter. This colossal obligation can further strain the operating margins later on and could even drive the organization into liquidation as the obligation looks overwhelming.
Dryships reported $13.4 million in EBITDA in its shipping segment, yet it spent more than $33 million in obligation payments. So, it is obvious that Dryships is not gaining enough cash to service its obligation payments and it will need to triple its earnings to accommodate the obligation repayments sufficiently. Thus, it will be so optimistic it would be impossible assume that the late restoration in shipping rates will turn around the organization's fortunes so drastically.
Poor administration and share weakening
Dryships' administration had chosen to issue around 6 million shares for $20 million in the previous quarter as it looks to tap each possible stream of cash that it can lay its hands on. This wasn't the first occasion when that Dryships resorted to share weakening to get more cash. Such share weakening doesn't make Dryships a perfect purchase for a long haul investor as it may never yield a decent return because of poor administration.
Conceivably, Dryships administration should have considered selling off underperforming assets to keep its budgetary condition in place instead of weaken shareholder value. In any case, the organization seems to be doing the opposite. It paid a purchaser $21.4 million recently to dispose of two unfinished tankers.
Ocean Rig is no savior
It is accepted that Dryships' fiscal situation will show signs of improvement because of boring operations it provides through its somewhat claimed subsidiary - Ocean Rig. Despite the fact that Dryships owns a 59% stake in Ocean Rig, it has no power over the capital and resources of Ocean Rig. So, investors would not be right to accept that Ocean Rig's request build-up of $5.8 billion will profit Dryships much.
Conclusion
Dryships has picked up strongly this year despite a tremendous obligation load, poor cash position, and poor administration decisions. At the same time under such circumstances, one can't anticipate that the stock will sustain its bullish run for long. So, investors who have profited this year by investing in Dryships should book their gains and search for safer and more stable investment options.
