Monday, June 13, 2011

DryShips Inc (NASDAQ: DRYS) Q3 2011 Price Target

Recent price: 3.76$
P/E Ratio: 5.93
3 Months Target Price: 5$

Company Description
According to their SEC Filings, DryShips Inc. is a holding company. The Company is engaged in the ocean transportation services of drybulk cargoes worldwide through the ownership and operation of the drybulk carrier vessels and deepwater drilling rig services through the ownership of ultra-deep water drilling rigs. As of April 6, 2010, the Company owned, through its subsidiaries, a fleet of 39 drybulk carriers consisted of seven Capesize, 28 Panamax, two Supramax vessels and two Panamax newbuilding vessels, which have a combined deadweight tons of approximately 3.3 million dead weight tons. Its drybulk fleet principally carries a variety of drybulk commodities, including major bulk items, such as coal, iron ore, and grains, and minor bulk items, such as bauxite, phosphate, fertilizers and steel products. The average age of the vessels in its drybulk fleet is 8.3 years. In January 2009, the Company disposed off three Capesize newbuildings..

Confidence Margins
Strong resistance $6.44 (+71%)
Light resistance $5.12 (+36%)
Light support $3.56 (-5%)
Strong support $3.28 (-13%)

DryShips is a company that has it's stock subject to a lot of volatility. It however presents an impressive buying opportunity at current price. First, profitability is coming back to the company even if capital expenditures are rapidly increasing. There is also the upcoming spin-off of the Ocean Rig subsidiary that will greatly increase shareholder value while reducing the debt load of the holding company. Last time this company showed up on our screen list, it provided a 20% return to the cautious investor.

Entry strategy
For the cautious investor:
Buy the stock for 4$ or less.

For the risk-taking trader:
The September 2011 4$ out-of-the-money call option contract seems to be the right position to take, they can be acquired for about 33$ per contract.

Exit Strategy
For the cautious investor:
Sell when the stock reaches 5$, or keep it until 6$ if you are more bullish in your own analysis.

For the risk-taking trader:
The contracts should be kept until the underlying reaches 5$. This should provide a very interesting return if the underlying reaches the target price as the contracts will get in the money.

1 comment:

  1. Theirs a exchange traded fund listed under the Symbol SEA that specializes in sea or marine transportation companies. Just thought I would be helpful here.