[DRYS] update

In the backlink the shares were trading at 50 cents with the possibility of a double bottom forming.  Stops were to be set at .48 in accordance with EW trading logic.  Well, the double bottom did not hold and so I have been watching it plunge since then.   Recently the plunge accelerated and so my interest is piqued again.

In short, DRYS had crushing debt that it has been struggling to get out from under.  Dry bulk shipping rates have been in the dump.  This past week, DRYS essentially got out of the dry bulk shipping business by selling a bunch of vessels, many of which it owed debt on.  The remainder of its vessels were declared to be up for sale.

As a result of all this, and assuming that the remainder of its dry bulk fleet is sold at reasonable prices, "DRYS will have total debt of $380M (down from just over $1B), cash of $195M (up from $10M) and $160M stake in ORIG" (at current ORIG price) according to a Deutsche Bank analyst.  So in other words, 380mn in debt and 195+160 = 355mn in equity but essentially without any revenue generation source.  So they have net debt of 25mn and only share price appreciation or dividend income from their still very substantial ownership percentage of ORIG.

What the company essentially did was liquidate itself outside of bankruptcy.  That it did this right into the bottom of the commodity crash is just the kind of move that I would expect.  After all, the company is in survival mode and this move ensures that it will survive in some form.  It is the ultimate act of conservatism to sell off the assets which carry debt in order to ensure company survival, even if it did so right at what is likely a major bottom for commodities and dry bulk rates.

As a result of this dramatic move, the market went into panic sell mode which has me sniffing around for short term trading opportunities.  After all, what this means is that the company is now likely safe from BK and if ORIG shares move back up, DRYS equity also moves up rapidly since ~45% of DRYS equity is in the form of highly undervalued ORIG shares.

Deutsche Bank now values the company @ 35 cents per share so it is trading at a 30 % discount to that right now.  But more importantly, the wave count suggests that 5 waves down have completed and thus, at the very least, we should expect an  a-b-c back to the level of the prior 4th ($1.40).  I could easily see this happening if ORIG shares begin to catch a bid here as my models indicate is likely.  If ORIG goes back up to $9 then this triples DRYS $160mn ORIG stake.  At that point, DRYS could buy itself out of debt completely by selling ORIG and then still have 200mn cash to rebuild the business with.



Bottom line: a small amount of DRYS in the 20-22 cent range could turn into a nice windfall if treated as a non-expiring call option on ORIG stock.  While I presented some fundamentals, the idea to buy some shares here is driven mainly by the wave count.