DryShips, Inc. (NASDAQ:DRYS)

CAPS Rating: 3 out of 5

The Company owns and operates fleets. The company's fleet carries various drybulk commodities, including coal, iron ore, and grains, bauxite, phosphate, fertilizers and steel products.

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Player Avatar JakilaTheHun (99.94) Submitted: 10/11/2008 12:59:51 PM : Outperform Start Price: $22.49 DRYS Score: -44.86

Admittedly, I don't know all that much about the drybulk shipping industry and it's an area I hope to gain more knowledge on in the upcoming months. However, I have examined a lot of commodity stocks and DRYS has a similar cyclical nature. It has some huge upside and given the fundamentals, I think it's worth the gamble.

The book value of DRYS's equity was $28.7 per share. That was at the time of their last 20-F annual report which was about six months ago. Given their profitability and cash flows in recent times, that has probably increased a bit since then.

Working capital is unfortunately low at 0.20. Quick ratio is difficult to calculate, but I got an extremely low figure of 0.08! However, that is not a very good indicator because DRYS has very good cash flows from operations. If you take liquid assets add cash flows from operations and divide the result by current liabilities (what I term "The Huney Ratio"), you get a much better figure of 1.75! Sounds significantly better, doesn't it? Debt-to-value ratio is 61.4% --- which is high, but not quite unbearable.

For FY '07, DRYS had earnings of $13.29/share. That figure is deceptive because a good chunk came from the sale of vessels. Discounting that, they still had impressive earnings of $9.51/share. Cash flows (from operations) were even better at $11.43 per share.

Analyst forecasts for DRYS have been lowered recently, but they still expect around $16.19 per share for FY '08 and somewhere between $8 - $15 per share for FY '09. That means the stock is actually trading close to its forward earnings! While I do not know how analysts have concluded they will make $16 for the current year when they only made about $9.50 (discounting vessel sales) last year, I do know that there is a very huge margin for error here! Even if DRYS makes an average of $7 per share over the next two years, that's not a bad deal.

Given the fact that this is trading at roughly a 40% discount to its book value right now (at $17), this seems like a good long-term buy-and-hold target. If DRYS has a couple of nasty years, you still haven't really lost any value and if they have big earnings, you have the potential to see this stock skyrocket back upwards and potentially make something like a 3- to 6- fold gain! As such, I'm picking outperform and I plan on sitting back and waiting it out.

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