About a month ago I wrote a post about DryShips (NASDAQ: DRYS), the drybulk shipping company that's been on fire during the last year. I argued that the stock was undervalued compared to its peer Teekay Shipping (NYSE: TK) and that the stock remained a buy at those levels. Since this post, the stock has had its up and downs but has managed to outperform both Teekay and the S&P 500.

After the bell Wednesday DryShips reported very strong earnings. For the quarter, excluding a one-time sale, the company earned $1.59 per share vs. analyst estimates of $1.34 per share. DryShips also reported notably strong revenues of $112.5 million vs. estimates of $98.7 million.

The company's CEO and chairman also said that "the outlook for 2008 remains positive with fewer vessels being delivered from the shipyards and Chinese demand projected to remain strong." This seems to confirm my original opinions of continued pricing power for the drybulk industry.

If DryShips can continue its beat-and-raise pattern I believe the stock will trade towards $75 per share in the next 2-3 quarters. However, the company's leverage is a double-edged sword and when times turn bad this stock stands to crash which is why it's imperative to keep a stop loss in place as I advocated in my first post.

The stock finished the day up nearly $2 per share then added $3.75 in gains in after hours trading. When times are good times, times are great for these momentum stocks.