Tuesday, October 30, 2007

DryShips hits an iceberg

Not exactly sure what happened to DryShips Inc. (DRYS) today. Perhaps investors were spooked from what Motley Fool writer Rich Smith wrote yesterday;
"while the dry bulk shipping industry is booming, I fail to see why a single player within this industry -- DryShips -- should enjoy a valuation more than 50% higher than its nearest rival, and more than twice that of some of the ships giving more distant chase. Sure, it gets the best margins of the bunch, but that just raises more flags. Reviewing DryShips' results, we see that much of its profit over the past year was derived from gains on the sale of assets. Meanwhile, the firm's cash flow statements don't show this supposedly wildly profitable firm generating any cash profits since its IPO. On the contrary, over the last year, the firm has burned through nearly $500 million in free cash flow, as its long-term debt ballooned from $418 million to $728 million. Somewhere, this corporate ship has sprung a leak.
If DryShips can't generate free cash flow on sky-high margins, I shudder to think what will happen when those profit margins splash back down to sea level. And you should to -- because this is the scariest stock in the world."
Investors certainly jumped ship today.

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