What happened
Shares of DryShips (DRYS) plummeted more than 30% by 11:15 a.m. EDT on Monday morning after the shipping company announced another reverse stock split.
So what
DryShips said it would enact a 1-for-5 reserve stock split that will go into effect on June 22. As a result, the company's outstanding shares will drop from 24.1 million to 4.8 million. This split is the company's second in the past month, with the company completing a 1-for-7 reverse split in early May.
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What's worth noting about that last transaction is that it took the company's outstanding share count from 65.6 million down to 9.6 million shares. However, the share count has more than doubled since that time because the company has sold additional shares as it continues its highly dilutive private stock offerings to raise capital so it can rebuild its fleet. These latest shares are part of the company's $226.4 million stock purchase agreement with Kalani Investments Limited and follow two separate $200 million offerings the company completed with Kalani earlier this year. This dilution continues to overwhelm the stock, which is down more than 99% this year because the company flooded the market with more new shares than it could handle. DryShips has tried to counteract this dizzying dilution by completing several reverse splits over the past year, which had amounted to a cumulative 1-for-48,000 through the end of the first quarter.
Now what
DryShips continues its value-destroying pattern of selling stock no matter the price -- causing the price to plunge -- that it tries to counteract with reverses splits to boost shares back into the mid-single-digits, only to repeat the cycle. It's the opposite of what a company focused on creating value would do. It's why investors who value their money should steer clear of DryShips' stock despite the growth it anticipates because there's no guarantee it will materialize -- or that the company won't squander the opportunity.
