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DryShips Inc. (NASDAQ:DRYS) Was A Short Squeeze Runner, What's Next?

DryShips Inc. (NASDAQ:DRYS) Was A Short Squeeze Runner, What's Next?
Written by
Chris Sandburg
Published on
August 19, 2017
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Back towards the end of last week, we took a look at DryShips Inc. (NASDAQ:DRYS) as part of this piece. The company had just announced a stock purchase agreement and a $100 million capital injection and – on the back of the news – we suggested that there was a good chance of a short squeeze.Our thesis was relatively simple and very short term. Markets weren’t sure how to respond to the news and any concrete long term bias was difficult to predict. A portion of shareholders seemed to be interpreting the events positively while, on the other side of the equation, a portion of holders saw the update as a short term solution to what is possibly a longer term problem at the company.None of this mattered to us. This is a company that's down more than 99% on it's year to date open and has been subject of a raft of reverse splits across the period. There's a potential near term split set to hit the tape over the coming months and – to put it plainly – DryShips looks in trouble. When you get a company that's as beaten down as DryShips is, any news that brings with it a $100 million injection of capital and removes a controversial financing program is going to inject some immediate upside momentum into market capitalization, regardless of long term implications.DryShips has been a favorite for shorts over the last twelve months and a large portion of said shorts have done pretty well across the period. We said we'd be willing to bet that there was a pretty substantial naked short base, however, and that we wouldn't want to be in their shoes on the morning of the above-discussed release.In other words, we said we expected a short squeeze and that's exactly what we got.The company ran up from $2 a share pre-announcement to more than $4 a piece at market open (subsequent to a pretty active pre-market period), returning a quick 98% to anyone that jumped in on the squeeze.So what's next?Well, it's tough to say. This was a short term bias and DryShips is far from out of the rough as far as getting back on track for long term growth is concerned. With that said, sentiment seems to be somewhat positive right now and with a large portion of the short base squeezed out of the market last week there's a degree of pressure that's lifted. With this in mind, any near term catalyst (i.e. one that comes in the wake of the recent news and while sentiment remains buoyant) has the potential to compound the action and get this one running again.As far as what these catalysts might be, again it's tough to say. There's the potential for earnings hitting press early next week, with Monday rumored to be a potential release date. If the numbers hit press and if they show that DryShips is keeping its shipping revenue growth in place, then there's every chance we'll see an early week run.Again, it's a short-term thesis. The long-term impact of the $100 million injection (and there's the potential for another injection of a similar size a little farther down the line, but this isn’t guaranteed) remains to be seen. Financing and capital structure concerns may be weighing on share price, but this is still a company with substantial operations and a substantial asset base (we'll know exactly how substantial when the above-discussed earnings hit press). If the former concerns ease, there's room for growth. That's a big if, of course. Let's see what happens. We'll update after earnings as and when they hit.Check out our previous coverage of this one here. We will be updating our subscribers as soon as we know more. For the latest updates on DRYS, sign-up below!Image courtesy of Serhio Magpie via FlickrDisclosure: We have no position in DRYS and have not been compensated for this article.

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