There is additional speculation that the massive consumption of China will increase, as there is now a rebuilding process along with the daily requirements that has the dryshipper's move higher. It is a simple equation. China needs materials and they will either find those in their soil or get it from somewhere else. When it is imported, the most cost efficient way to transport the material is shipping lines. In addition, China has a voracious appetite for coal and iron in order to make steel.
South America is now back on line to begin exporting iron, as is Australia. Both will be exporting coal to China, supplemented by South Africa. Put this all together, and the investors are seeing no end to the shipments to emerging China. So, the high demand for commodities, mainly coal, grain, metals, and fuels are causing the dry shipping rates to soar. That, in turn, creates a nice bottom line.
The main competition for DRYS is Eagle Shipping (NASDAQ: EGLE), Excel Maritime Shipping (NYSE: EXM), and Genco Shipping (NYSE: GNK). The closest company in terms of revenue and revenue growth is Genco, yet Dryship's revenue exceeds them both by at least double.
The company's net income for 2007 was $474,617,000. First Call is looking for earnings for this period to come in at $2.05.
As stated in the 2007 annual report for DRYS, "Rising fuels prices may adversely affect our profit" "Fuel is significant, if not our largest expense in our shipping operations." Although there is no sign of this yet as we watch their price continue to rise and you just have to wonder why that has not affected the stock as of late.
Earnings are due tonight and rest assured that investors will move the stock if earnings come outside of a direct hit.
My bet? Not going to take this one as the volatility has been way too rich for a Disciplined Investor.
Disclosure: Horowitz & Company clients do not hold positions in stocks mentioned as of the publish date.
Andrew Horowitz is a money manager and author of The Disciplined Investor: Essential Strategies for Success.
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Reader Comments (Page 1 of 1)
5-19-2008 @ 4:52PM
AG said...
Andrew – I have read that statement in their reports ("Rising fuels prices may adversely affect our profit") but in listening to a call with a bunch of dry bulk CEO’s a few months ago they actually said that rising fuel costs were a “blessing in disguise”. I believe they said that increased fuel costs were passed on to the customer and that because of the higher prices; they saw increased demand for coal shipments which was to their benefit.
5-19-2008 @ 5:10PM
stephen rosenman said...
From your comments, you clearly have very little knowledge of DRYS or other drybulk shipping companies. These companies charter their vessels out. As a result, they do not pay for fuel. The price of oil does not have any affect on their revenues or profits. You have stayed out of investing in the group. DRYS has doubled its share price since January 16, 2008, has knock your socks off earnings and revenues, and has a forward PE of about 8.