Is DryShips Inc. (DRYS) Destined for Greatness?

DryShip’s New Year’s pop has been slipping away for the past month, and the Baltic Dry Index can help explain why. During our tracking period, this index has dropped 67%, but it’s been flat for the past year and retains a slight gain since the start of January after losing a peak reached shortly after DryShips’. Although DryShips’ stock price doesn’t precisely track this index’s movements, it’s a pretty close approximation over the long run:

^BDIY data by YCharts.

However, there may be some indication that this long-term weakness is about to turn around. My fellow Fool Alex Dumortier notes that private equity firms have begun buying up the debt and assets of shipping companies, and on a cyclically adjusted valuation basis, DryShips has a P/E ratio of less than one, which is lower than nearly any other shipping company except for Excel Maritime Carriers Ltd (NYSE:EXM). This valuation is ascertained through the trailing 10-year average of inflation-adjusted earnings per share, which may not accurately reflect DryShips’ potential. However, it’s certainly worth considering in the scope of our analysis, as the devastation wrought on the shipping industry was and is squeezing weaker competitors to their limits. A reduction in available ships, particularly in a slowly growing global economy, would force prices up industrywide.

Putting the pieces together
Today, DryShips has few of the qualities that make up a great stock, but no stock is truly perfect. Digging deeper can help you uncover the answers you need to make a great buy — or to stay away from a stock that’s going nowhere.

The article Is DryShips Destined for Greatness? originally appeared on Fool.com and is written by Alex Planes.

Fool contributor Alex Planes holds no financial position in any company mentioned here. Add him on Google+ or follow him on Twitter @TMFBiggles for more insight into markets, history, and technology. The Motley Fool has no position in any of the stocks mentioned.

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