DryShips Inc. (NASDAQ: DRYS) Shares Slide After Form F-3 Filing

DryShips Inc. (NASDAQ: DRYS) was down over 17%, on above average trading volume today. Many traders believe this was due to an SEC Form F-3 filing. For those of you are not familiar with that type of filing, it’s simply a required form for the registration of specified securities by foreign issuers. In other words, foreign companies need to file this form to issue new securities.

The market reacted poorly to the holding company that owns drybulk carriers and offshore support vessels.

Now, the Form F-3 was for an indeterminate amount of mixed shelf–potentially worth a maximum of $2B in various securities. Consequently, this could potentially dilute the stock and that could very well be the reason why shares sold off today. The company did not make any statements or issue any press releases regarding the Form F-3.

Interestingly, the company initiated a regular quarterly dividend policy, and declared its first dividend to common stockholders last month. That said, DryShips will pay a regular fixed quarterly dividend of $2.5M to common shareholders. The company will pay approximately 1.74 cents per common share, payable on or around March 31, 2017.

Now, for a company to look to raise capital, it might be unwise to pay dividends to shareholders at this point. DryShips indicated it would look to diversify and grow its fleet, while looking to increase its liquidity, after it announced its successful $200M common stock offering.

That in mind, the company stated in its Form F-3 that the issuance of any additional shares of its common stock or other equity securities with an equal or senior rank could decrease the proportionate ownership interest in the company; could decrease the amount of cash available for dividends payable; and may decrease the common stock’s market value.

What You Need to Know About DryShips

  • Company filed a form F-3, and the amount to be registered was a maximum of $2B, potentially diluting the stock.
  • DryShips also took dilutive measures after announcing its successful completion of its $200M stock offering. Company raised net proceeds of $198M.
  • Company had total liabilities of $143.96M and shareholder equity of $49.77M.
  • DRYS had debt-to-equity ratio 2.89, well above the industry average                                
  • DRYS had a market cap of $143M, as of March 20, 2017.
  • The stock had approximately 152M outstanding shares after its common stock offering, company previously had around 104M shares outstanding.
  • DRYS was one of the most talked about stocks at one point in 2016, after it hit over $2,000 per share, after split adjustments.

– Stock was down over 99% over the past year.

DRYS Performance

Source: TradingView

(Take a look at the chart above, this news came out during the pre-market, and you’ll notice the big red candle right before the open. The stock dropped to a low of $1.27 right after the open.)

DRYS Bull Case

The bull case here would be for the longer term. The company could be raising cash in an attempt to decrease its liabilities, which would push its debt-to-equity ratio lower. Moreover, if it’s able to decrease its debt, it would be able to operate more efficiently. However, it may take a while for the company to pay off its debt. Another reason one might be long is due to the stock’s recent fall. Now, this would be considered a contrarian trade. A final reason would be its dividend. The company had a high annualized dividend yield of 5.05%, which could be attractive to income investors.

 

Bear Case

On the other hand, there are some reasons why traders may want to be short the name. DryShips’ Form F-3 signals potential dilutions in the name, which could potentially push the stock lower. In fact, the potential dilutions could potentially decrease the amount of cash available to shareholders, so it’s dividend is at risk of being cut. The company has an abnormally high debt-to-equity ratio, in relation to its peers, indicating DryShips could be in poor financial health.

 

The Bottom Line

DryShips’ SEC filing indicates its shares could potentially be diluted, which would cause the stock to fall. The company is looking to potentially issue a maximum of $2B worth of various securities, and it recently issued a quarterly dividend that could be at risk. However, there are reasons why some traders would be on the short and long side.

 

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