DryShips Inc. (NASDAQ:DRYS) has lost over 99% of its value since inception, and legacy shareholders have been wiped out through reverse splits and dilution. But that doesn’t mean its impossible to make money on this stock – quite the opposite.
In fact, DryShips has made many people millionaires overnight. It’s simply a matter of buying and – more importantly – selling at the right time. But what will it take to trigger another massive short squeeze and send shares up by over 100% in a matter of hours? The answer to this question will depend on shipping rates, diversification, and outside investment.
The Original Short Squeeze
DryShips hit the radar in mid-November 2016 after a massive short-squeeze sent the stock up over 1,000 percent in a matter of days. The tremendous upside was driven by DryShips’ unusually large short-interest coupled with speculation that Donald Trump’s presidency would result in a shipping boom that would send the shipper’s revenue soaring.
Thankfully, for DryShip’s hopefuls, another epic short squeeze is still a possibility. Many of the factors that triggered the original short squeeze are still in play.
It ‘s hard to determine exactly how much shares DryShips has outstanding because of the ongoing dilution. But extrapolating from the dividend announced on March 15, we can safely assume there are upwards of 144 million shares. I don’t how many shares are currently being shorted, but it ‘s hard to borrow shares of DryShips (believe me I’ve tried), so it’s safe to assume the stock’s short interest is still astronomical.
What Can Trigger the Next Squeeze?
- Higher Panamax rates. The Baltic Dry Index is in the midst of a convincing rally, but this rally is driven by Capesize vessels which are in demand to ship iron ore from Brazil to China. DryShips’ dry bulk fleet is strictly Panamax, so it doesn’t benefit from higher Capesize rates.
However, Panamax vessels may see increasing demand from Brazilian grain exports to the far east. The South American soybean industry is picking up steam after delays in shipping at the beginning of the month. This year’s harvest is expected to break records, and this could send the Panamax index soaring.
- Diversification could also trigger a short squeeze in DryShips. DryShips’ fleet is not very diversified, and this may be preventing the stock from benefiting from some of the headwinds in shipping outside of the Panamax class.
DryShips has exercised an option to purchase four VLGC vessels, and instead of depending on volatile spot rates, these ships will operate on a fixed rate charter with a duration of five years. Stable and reliable cash flows should help improve DryShips’ financial condition when these vessels enter service.
- A strategic cash infusion or institutional investment. If DryShips were to get a non-dilutive capital investment from Kalani Investments or some other party, this could send shares soaring. Liquidity is one of DryShip’s most pressing concerns because as long as the company is losing money from operations, the threat of dilution will pressure the stock price.
The market would take it very well if DryShips found a way to raise cash without selling more shares or was able to attract the attention of respected institutional investors.
DryShips still has a massive short interest, and this means a short squeeze is still a possibility over the next few months. Many factors could cause the next short squeeze: Panamax rates, diversification, and cash investment from an outside party.
DryShips remains and incredibly risky stock to invest in, but the risk is commensurate to the rewards. DryShips remains an all or nothing bet.