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Here's A Speculative Play In DryShips Inc. (NASDAQ:DRYS)

Here's A Speculative Play In DryShips Inc. (NASDAQ:DRYS)
Written by
Chris Sandburg
Published on
October 20, 2017
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DryShips Inc. (NASDAQ:DRYS) hasn't been a great stock to hold over the last couple of years.The company has basically seen its share price deteriorated by more than 99% across the period and a constant cycle of equity issue and reverse splits has diluted anybody with any substantial holding to nothing but a nominal portion of the outstanding base of shares. DRYS Daily ChartThere is an argument that management is to blame for the situation and, as we are willing to bet many shareholders would agree, this argument holds a considerable amount of water.The shipping industry is now starting to recover from multiyear lows and DryShips rushed to raise capital in order to expand its fleet at rock bottom prices in line with said lows. However, timing wasn't great and the company was forced to raise said capital at extremely subdued share prices, meaning a substantial amount of shares were needed to cover the cost of the expanded fleet, even given the discount prices at which the company was able to pick up its fresh inventory.Where this stock goes from here long term is anybody's guess. There's some credence to the suggestion that, as the industry recovers, DryShips will be able to take advantage of its larger fleet in order to score expansion deals and, in turn, grow revenues in line with the overarching industry growth.The impact of any such activity on shareholders, however, is far more uncertain.We know management, and specifically, the company CEO, has a web of shipping deals already in place that serve to increase value for insiders but that translate to very little in terms of value for shareholders and this, perhaps rightly so, has led to a degree of unrest among the current shareholder base and a degree of skepticism among wider markets towards the company, its operations and its prospects.So why are we highlighting this one today?Well, because against a backdrop of all this uncertainty, we think we might have spotted an opportunity to jump into DryShips for a quick turnaround trade.At the start of October, markets learned that the company's CEO, George Economou, had upped his stake in DryShips from around 53% to just shy of 70% by way of a $100 million open market purchase. Additionally, we learned that he had forfeited the preferred shares that would've given him ownership control.This news translated to some short-term strength but our thesis is rooted in a separate element of the transaction – Economou isn't allowed to sell any of the shares associated with the $100 million open market purchase for six months.We are going to fall in line with the implications of the bad management outlined above and suggest that, once the six-month period draws to a close, Economou is going to sell a substantial portion of his open-market purchase.That's speculative, but it's not reasonable.If this is the case, and we believe it is, he's going to want to do everything he can between now and the end of the six-month period to boost share price. There is the potential for two earnings releases over the next 6 to 9 months, with the first of these set to hit press during the second week of November. There is also scope for plenty of press releases, specifically surrounding the pending delivery of two of the ships Economou bought with the capital he raised on the back of the above-discussed equity issues.The opportunity here, then, is to jump in now and to sell out of the position before Economou is able to do the same.It's a risky one, sure, but it's a fun one for anyone that wants to take a punt.Check out our previous coverage of this stock 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 Gadjo_Niglo via FlickrDisclosure: We have no position in DRYS and have not been compensated for this article.

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