DRYS Stock Analysis: A Disastrous Descent to Rock Bottom

    The article was written by Harry Chiang, a Financial Analyst at I Know First.

DryShips Inc. Stock Analysis

“[DryShip’s] Economou managed to completely destroy any shareholder value over the last several years […] the worst CEO.” Giovanni DiMauro, Founder of Inside Wall Street

DryShips Stock Analysis


  • This Ship is Leaking, And its Leaking Cash
  • George Economou’s Secret Weapon
  • A Lack of Leadership in the Face of Adversity
  • Is 2017 the Hopeful Turning Point?


DryShips, Inc. (NASDAQ: DRYS) was incorporated in 2004 by George Economou as a holding company. The company, headquartered in Greece, owns drybulk carriers and offshore support vessels. As of June 2015, this fleet consisted of 39 drybulk carriers. The company also operates 11 semi-submersible oil rigs through its subsidiary Ocean Rig.

The company operates through two primary segments. These are the drybulk carrier, and the offshore support. The drybulk carrier segment takes care of drybulk commodities transportation services for the steel, electricity utility, construction and agri-food industries. This involves transportation and handling through ownership and trading of vessels. DryShips manages this between short-term time charters or sport charters and long-term time charters and bareboat charters. On the other hand, the offshore support segment deals with providing offshore support services to the global offshore energy industry. Dryships’s offshore segment utilizes a diversified fleet of offshore support vessels under long-term time charters.

On paper, the description of DryShips seems eminently reasonable. However, the very mention of DryShips today is a measure of great controversy. Reactions to the company range anywhere from gleeful delight at the slow-motion burning train-wreck many have described it as, to an exasperated irritation at the loss it has caused over the years. One needs simply to pull up a stock chart of the last few years for DRYS to see why this company is causing such an uproar. The stock is currently sitting at a price of around $2.33 at the time of writing. However, ten years ago, according to technical calculation, the stock was haphazardly peaking at a value of around $200 million – per share. Through a series of unorthodox maneuvers the company has somehow continued to defy expectations, and not necessarily in a positive light.

DryShips Stock Analysis

This Ship is Leaking, And its Leaking Cash

On May 10th, DryShips reported its first quarter results in a usual press release. To the unobservant eye, this was a release full of positive news. George Economou stated, “DryShips has come a long way since last year when we were fighting for the Company’s survival. Since then we have cleaned up the Company’s balance sheet and almost doubled our fleet by acquiring modern quality vessels”. This is accompanied by a bevy of information regarding the positive situation the company finds itself in this year. Economou goes on to state, “With this rapid expansion phase behind us we look forward to […] starting to generate revenue that will improve our bottom line and demonstrate the earnings capacity of our fleet over the next few quarters”.

To be fair to Economou, the press release does speak of an optimistic outlook. For example, earlier in May, the company received a firm commitment from a major European bank and an Asian export credit agency for a secured term loan facility of up to $200 million to partly finance the delivery of its four Very Large Gas Carriers. Evidently, these institutions are still at least partially confident in DryShips ability to make good on this loan.

Furthermore, the press release states that the company has raised approximately $570 million of equity over the last six months. This has led to the acquisition of 17 vessels. The company estimates that with these new vessels, this active fleet will generate EBITDA of approximately $77.0 million. This is an improvement on the previous EBITDA of $70 million. In other words, the company is asserting that the worst days are behind it and it is at the beginning of an upwards trend. It even has a new dividend policy that will pay a regular fixed quarterly dividend of $2.5 million to the holders of its common stock.

However, why are still investors still skeptical of DryShips? Firstly, the first quarter release of 2017 reported a lot of positive news, but it neglected to comment on the financial statements quietly tucked away on the later pages. The company reported $11.8 million in revenue during the quarter, which was down from $17.0 million in the first quarter of last year. Furthermore, this is even more disquieting when compared to the year previous to that. In the same quarter for 2015, the company reported revenues of almost 40 fold, at $492.11 million. This then quickly dropped over the two years, drastically dropping from $403.18M to $50.77M from one quarter to the next.

According to the numbers, DryShips spent nearly $2 for every $1 of revenue it took in in the first quarter of 2017, not taking into account the cash used to acquire more boats. It is no wonder that DryShips presents a situation that increasingly frustrates investors. On the upside, however, after adjusting a few items the company reported a negative $7.4 million in adjusted EBITDA for Q1 2017. This is an improvement from the previous quarter’s negative $7.9 million in adjusted EBITDA and the negative $10.4 million in adjusted EBITDA it reported in the year-ago quarter.

DryShips Stock Analysis

George Economou’s Secret Weapon

One might wonder how the stock value experienced such a sharp drop over the last ten years. Economou’s secret is this: a dubious deal with a secretive investor accompanied by reverse share splits and stock dumping. When DryShips was still growing, the stock price was at one point soaring, attracting the attention of thousands of fast-trading individual investors. Once the rally peaked, the company began issuing stock. This went on to total more than $500 million and was issued at ever-diminishing prices. This stock was, according to filings, sold to a group called Kalani Investments.

Very little is known about the firm founded in 1996 and headquartered in the British Virgin Islands. It is supposedly not associated with George Economou, but there is much speculation as to this matter. It is difficult not to speculate. After all, Kalani Investment immediately dumped the stock it had from DryShips back on to the market after obtaining it. The absurd amount of stock suddenly floating around the market has continuously been dragging share values downwards over the last few years.

To improve company numbers, Economou has been using the last component of his not-so-secret weapon: reverse stock splits. The company is involved with an almost unprecedented number of stock splits. This is a very unusual trajectory for a company of this size. Before its last two stock splits, the company had engineered a cumulative 1-for-48,000 in reverse splits from the first quarter of 2016 to the end of this year’s first quarter.

To clarify, take the company’s latest 1-for-5 reverse split. This will reduce the outstanding share count from 24 million to around 4.8 million. This split would seemingly reduce a meaningful quantity of shares, which would supposedly bolster stock prices. However, looking back at previous examples, once can see this is not quite the case. For example, the company’s previous 1-for-7 reverse split last month reduced the share count from 65.6 million all the way down to 9.4 million. Enter Kalani Investments. The outstanding share count shot back up over the next few months from 9.4 million to more than 24 million. The company has continuously sold stock ignoring the price of it.

With every reverse split, investors struggle more to keep track of the company’s complicated financial picture. However, experts generally agree that reverse splits do not do anything for a company’s fundamental picture. Studies show that reverse split stocks perform worse than when not split. Upon doing the calculations, however, this does explain why stock value from ten years ago was technically $200 million per share. This also explains why DryShips stock continues to slowly sink and the splits barely keep it afloat.

DryShips Stock Analysis

(Source: Smarter Analyst http://www.smarteranalyst.com)

A Lack of Leadership in the Face of Adversity

When investing, people tend to look at a lot of factors. They examine the financial fundamentals, the industry, and the product. They also examine the leadership. There is a school of thought that believes when investing, one should be prepared for terrible leadership because it will eventually happen. According to Giovanni DiMauro, DryShips didn’t need to wait for that phenomenon to come round, it started with it. DiMauro has called Economou “possibly the most arrogant and uncaring CEO of all time. He is a habitual diluter of shareholder value and not to be trusted”.

His accusations are not necessarily unfounded. There is much speculation as to Economou’s objectives with DryShips and what he hopes to do with the company. In January earlier this year, news platforms reported that Economou had allegedly lied to the SEC in multiple 6-K filings and is now being investigated. Further investigation in the SEC filings has led to other suspicious findings.

For example, Economou recently refinanced the company’s debt with a $200 million loan from his own company Sifnos Shareholders, which charged a 2% fee plus interest, plus 30% upside of any asset value collateral base increase. Furthermore, loans that Economou has been taking out have been used to purchase ships, such as Very Large Carriers, from “companies controlled by its Chairman and Chief Executive Officer, Mr. George Economou”. Cardiff Marine, a ship management business, would then manage these ships. Not so coincidentally, Economou is in charge of Cardiff Marine.

By using loans and selling stocks, Economou has managed to acquire financing to buy up multiple maritime assets. According to company filings, Economou then manages these maritime assets through entities he owns. He makes several million dollars per year through this management. There is even speculation that Economou somehow controls Kalani Investments itself as well. Regardless of all the speculation, it is evident that whatever Economou’s plans are, he is executing them at the expense of all of his shareholders. He is infamous for stating “Who are my investors? Computer models, hedge funds and some institutions that go in and make $10 and get out.”

DryShips Stock Analysis

Is 2017 the Hopeful Turning Point?

Despite all the negative press, there are some that still hope for a turnaround for DryShips. While the company was still losing cash flow during the first quarter at an alarming rate, it expects improvements very soon. The recent increase in loans and expenditure is expected to pay off in the form of the 17 acquired vessels. It is important to note that DryShips secured these ships with long-term time charters. This means that, in theory, the company can expect relatively stable cash flow for a while.

These agreements do somewhat provide DryShips with a platform to launch from in the next few years. As previously mentioned, the generated EBITDA is supposed to be up to $77 million on an annual basis. It provides investors an idea of the cash-generating capacity for DryShips if things are smooth sailing in the near future. Over the next few quarters, investors expect the company to significantly improve its position with its new fleet and obtain a relatively steady cash flow.

However, this does not mean that DryShips is out of the eye of the storm quite yet. Investors have paid and continue to pay the price for long positions in this stock. All of the aforementioned issues continue to persist and the dilution of stock continues to be a massive concern. The company has a very, very long road ahead of it in trying to rebuild its financials and its image.

DryShips Stock Analysis


DryShips is perhaps one of the most controversial and problematic companies in recent news. Unless Economou has some sort of master plan in mind which will majorly benefit the company’s investors, DryShips looks to continue to be a dangerous prospect. Investors can expect to see more spikes in activity regarding stock price. However, if the company’s approach is to continue to keep the stock borderline $1-$2 with reverse splits then this looks to be an investment that is going nowhere fast.

Current I Know First Forecast for DRYS:

Below is the latest forecast I Know First algorithm released as of today on June 27, 2017.  I Know First rates DryShips as bearish. This lines up with all of the previous analysis and is indicative that the stock will be a touchy prospect for a long time.