DryShips Inc. (DRYS), Diana Shipping Inc. (DSX): Avoid This Sinking Ship

China is also trying to reduce coal demand by developing more non-fossil energies and improving coal consuming technologies. The aim is to reduce the carbon emission that is a major cause of smog and acid rain. China is the largest importer and consumer of coal globally. China estimated to save 270 million tonnes per year of standard coal equivalent for electricity generation by 2015, compared with 2011 levels. Even though this transformation will take time but the lower demand for coal will be negative for DryShips and Diana Shipping Inc. (NYSE:DSX) because both are engaged in the transportation of dry bulk cargoes. The decrease will not disturb Nordic American because it only operates oil tanker vessels.

Liquidity risk

DryShips might face a liquidity problem in the future. DryShips Inc. (NASDAQ:DRYS) total debt in the first quarter was $4.42 billion, up from $4.39 billion a year earlier. Its total debt-to-equity ratio is 117.55 times as compared to Diana Shipping Inc. (NYSE:DSX) and Nordic of 32.33 and 31.74 respectively. DryShips current ratio is 0.55 times while this ratio is 6.35 and 3.85 for Diana Shipping Inc. (NYSE:DSX) and Nordic, respectively. This low current ratio of DryShips advocates that the company might have difficulty meeting its short-term obligations in the future.

Final words

DryShips operates in both dry bulk and tanker segment. The crude oil price is rising due to which demand for crude oil will also reduce. The lower demand will be dangerous for the company’s tanker segment. On the other hand, coal demand from China will also be reduced in the future. The reduction will cut the shipping rates, which in turn will shrink the company’s dry bulk segment profit. In my opinion, DryShips will remain in loss. So, I recommend investors to avoid this sinking ship.

The article Avoid This Sinking Ship originally appeared on Fool.com and is written by Aftab malik.

Aftab malik has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Aftab is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

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