[ad_1]

On April 27, 2017, DryShips (NASDAQ:DRYS) provided investors with a key financial information update, indicating that based on its cash and cash equivalents, DRYS stock worth is $6.52 per share. This could mislead investors, because as of January 2017 the company had about 12 million shares versus the 59 million shares it has today. This means that total shares increased by 392% (share count increase = stock value decrease).

With the latest deal with Kalani, on April 3, 2017, DryShips entered into a common stock purchase agreement – the April 2017 Purchase Agreement – with the Investor. Dryships indicated that “the Investor is committed to purchase up to $226.4 million worth of shares of our common stock over a 24-month period”. As of April 21, 2017, DryShips had sold about $59 million worth of shares: 20,602,014 shares (=20,602,014 x $2.86).

Non-stop dilution (issuing of new shares)

Source: Created by Author (data obtained from SEC filing)

Based on the above chart, we can see that the outstanding shares count has been increasing steadily, and therefore putting a lot of pressure on the share price. Based on rough estimates, the company would need to issue more than 100 million shares to raise the remaining $167.4 million over a 24-month period. On top of this, a $2 billion shelf offering (issue of shares on a regular basis) is not yet underway. The number of shares needed to be issued is potentially staggering – probably close to a billion.

Source: Created by Author

On April 27, 2017, the company provided key financial information, see below:

Updated Key Information as of April 27, 2017:

  • Cash and cash equivalents – about $384 million, (or$6.52 per share)
  • Book value of vessels, including deposits – about $238 million, (or $4.04 per share)
  • Sifnos Loan Facility balance – about $200.0 million
  • Number of Shares Outstanding – about 58,905,719

Mr. George Economou, Chairman and Chief Executive Officer commented:

We are very excited to have completed the remarkable transformation of our balance sheet. Having all of our assets debt free, no mandatory loan payments over the next 4 years and available liquidity of $384 million, we strongly believe that our efforts to access bank debt financing for the first time since November 2014 will be successful and will allow us to further grow the size our fleet.

On April 11, 2017, the company provided key financial information, see below:

Updated Key Information as of April 11, 2017:

  • Cash and cash equivalents – about $422.0 million (or$8.98 per share)
  • Book value of vessels, including deposits – about $194.3 million (or $4.13 per share)
  • Third-party loans – about $16.5 million
  • Sifnos Loan Facility balance of about $200 million
  • Number of shares outstanding – about 47,010,986

Conclusion

DryShips said that they have fully repaid their remaining commercial loan facility of approximately $15.2 million, including overdue interest. The company had $422 million in cash as of April 11, 2017. If we subtract the loan payment of $15.2 million, the remaining cash balance should be $406.8 million, but they have $388.4 million only.

Shares

Cash Balance

11-Apr-17

47,010,986

$422,000,000

27-Apr-17

58,905,719

$384,000,000

$22,800,000

????

$15,200,000

loan payment

At this rate of cash burn ($23 million in less than a month), they cannot maintain a positive cash balance. It should come as no surprise that they are planning to raise the remaining $167.4 million through Kalani and a $2 billion shelf offering.

Based on cash/cash equivalents, the stock worth provided by the company has the potential to mislead investors, because the shares count keeps increasing.

My recommendation is that if you notice a big spike, you can confidently short DRYS.

Author’s note: Get my articles as soon as they are published by clicking the big orange “Follow” button at the top of this page.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Editor’s Note: This article covers one or more stocks trading at less than $1 per share and/or with less than a $100 million market cap. Please be aware of the risks associated with these stocks.

[ad_2]

Source link