DryShips Inc. (DRYS) is getting back to its pre-earnings share prices as it is again challenging the $7 mark.  The reasoning may partly be over China’s growth news yesterday, which is certainly a help to  all shippers, but that may be an indirect cause and effect.

The Baltic Dry Index is now getting close to challenging the highs seen in the May to June period, when it looked like shipping rates were going stay stronger than they had been for many months before.  We have also seen positive earnings from Genco Shipping & Trading (GNK) and Diana Shipping (DSX).

It seems that the last piece of the puzzle, the stock market, is about all that is missing from the “definite” side of the equation with this stock.  All stocks are generally correlated to the broad market over time.  If the market holds up to current levels or continues to crawl higher, even slowly, then DryShips is going to be sitting in a pretty position ahead.

DryShips Inc. had a mixed earnings picture. But the type of revenues DryShips brought in in the last quarter have begun to put the company in a new direction.

DryShips’ net earnings were dragged down by the valuation of interest rate swaps.  And total revenue was down nearly $100 million from a year ago to $228.2 million. But the revenue numbers represented a drilling contracts revenue gain of almost $20 million versus ‘voyage revenues’ falling by almost $120 million.  In short, going forward, DryShips can no longer be thought of as a drybulk pure-play, particularly after its pending ship purchases come on-line.

The company’s oil operations have fairly new contracts, and one is tied to a three-year deal with PetroBras (PBR).  The company did not officially declare that the recession was over, but hinted at it in more ways than one.  An issue that will work against this is that the company is really hedging its stance for this after it has noted that drybulk shipping demand is projected to remain strong for the coming years, but said that the large order book remains a cause for concern, especially for 2010.  Its drybulk fleet is now virtually fully fixed for the remainder of 2009 and 2010, and 77% fixed for 2011.

So again, this brings you right back to its future oil business.  Oil prices are not seeming to sell-off significantly. They are also not rising, sharply compared to what we had seen in earlier weeks and months.  That may classify the company’s oil business as an unknown, but the bias toward viewing oil services and shippers is not negative currently.

There is also a misleading notion over the value of the stock from what appears to be its old highs versus what used to be its old highs.  The official 52-week high is now ‘only’ $17.35.  If you go farther back, this was well over $50 for the first half of 2008, and shares even went above $100 briefly in 2008 and in 2007.

DryShips is not without controversy.  But the non-GAAP estimates are for earnings of 93 cents per share for 2009 and 89 cents per share for 2010.  That puts the stock so far under expected P/E ratios of 10 that it will show up on any value screen despite its growth plans and the dilution from the summer.  Add in a 12.19 million share short interest and an open interest of almost 90,000 CALL option contracts for November expiration alone, and any good news in this sector or the market is likely to propel DryShips higher.