A rising tide might lift all boats, but in the case of DryShips Inc. (NASDAQ:DRYS), the tide could have been based on unfounded rumors or, at best, shady dealings. And investors of DRYS stock, who recently “bought the rumor” — hoping to later “sell the news” — are starting to tread on shaky ground.
After DryShips shares skyrocketed more than 34% Monday, putting it on a five-day run of almost 130%, the stock was down as much as 8% Tuesday, falling to a session low of $5.16 on more than twice its normal volume.
There have been no new developments to support the decline. Instead, it’s likely some DRYS stock holders believe they’ve milked this run for all it’s worth.
The company has been bleeding cash left and right and operate in a dry-bulk carrier industry that is suffering from poor fundamentals. In its fiscal third quarter, DryShips, which owns a fleet of 15 Panamax drybulk carriers and six offshore supply vessels, lost more than $1,500 per day/per ship in operation. But here’s the thing: DRYS stock, which has lost nearly all of its value over the past year, has suddenly been revived.
The reason? The company in December announced that Kalani Investments Ltd. had taken an equity position.
According to a recent filing with the Securities and Exchange Commission, DryShips said it sold some 32 million shares, netting some $200 million in proceeds. Doing the math, that sale price translated to about $6.30 per share. And as you would expect, the DRYS stock price — which flirted below $2 within just the past few weeks — reacted accordingly. Shares have nearly tripled since.
This is even though Kalani Investments Ltd., which is headquartered in the Caribbean, is an unknown entity. And there have been no conformation that Kalani still owns DRY stock.
CNBC’s Karen Finerman said Kalani might have already sold its stake over the past week. Finerman added that Kalani’s stake may have been sold to “who they hoped would be bigger fools.”
The questionable equity stake aside, DryShips has other risks investors have overlooked, including allegations that CEO George Economou lied to the SEC in multiple 6-K filings.
Bottom Line for DRYS Stock
All told, beyond the weak fundamental performances, there are far too many uncertainties with DryShips to place a bet here. And with the company — by selling equity to Kalani — admitting that it desperately needs cash, DRYS stock will fall back under pressure for the foreseeable future.
Yes, DryShips trades at a cheap nominal price, but this is a company that has had to resort to four reverse stock splits in a year to artificially inflate its share price.
Investors are advised to stay away.
As of this writing, Richard Saintvilus did not hold a position in any of the aforementioned securities.