THIS GUY IS CALLING 90% DECLINE.SO THE STOCK IS GOING DOWN TO .30X.40.
THE SHORT ON TUESDAY WILL BE ALL OVER IT.THIS TIME I PREDICT ANOTHER SUDDEN R/S WITHIN WEEKS IMO.SCAMBAG CEO LIKE I SAID.
Henrik AlexFollow(1,780 followers)
Momentum, event-driven, short-term horizon, tech
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Summary
Company enters into another $200 mln stock purchase agreement with Kalani Investments.
Judging by the previous offering, expect the share price to decline by at least 90%.
Get short the shares now and switch into a brief long trade after the offering has closed.
Expect the proceeds to be used to purchase more vessels at unfavorable terms from the company's CEO, George Economou.
Note:
I have previously covered DryShips (NASDAQ:DRYS), so investors should view this article as an update to my earlier publishings on the company.
Just four weeks ago, my article "DryShips: George Economou's New, Revolutionary Approach To Ship Financing" has been published in which I discussed recent events that lead to a substantial recapitalization of the company at the expense of outside common shareholders.
Picture: Panamax bulk carrier "Rapallo" - Picture: shipspotting.com
Already at that time, I warned investors:
George Economou might have just invented the perpetuum mobile of modern vessel financing but shareholders will continue to be screwed this way as all proceeds from the company's ongoing equity issuances will be used to purchase overpriced vessels from companies privately controlled by Economou.
As long as there's substantial trading volume in DryShips' stock, the scam would theoretically work in perpetuity. So investors better prepare for another dance with Kalani in the not too distant future and more self-dealings to be financed by the additional proceeds.
Unfortunately, Friday's after hours news has proven me right as DryShips just entered into another $200 mln stock purchase agreement with Kalani Investments Limited ("Kalani"). The terms of this new agreement basically mirror the last agreement entered into on December 27, 2016.
As we have just gone through this exercise, it seems quite easy to project what is going to happen to DryShips' share price over the next few weeks:
The last time, it took DryShips a little over four weeks to raise $200 mln from Kalani. When the offering was announced on December 27, the split-adjusted share price was $32, after it closed on January 30, the shares were trading at $2.46, a 92% decline.
After the company announced the successful closing of the offering, the shares went on a strong recovery rally over the next few sessions and even managed to eclipse its current estimated net asset value of $5.50 per share at the peak.
So here's my bold advice to investors looking to successfully capitalize on George Economou's equally outrageous and brilliant financing approach:
Get short the shares as fast as you can.
Don't even worry about your entry point as the stock price will very soon start to enter another breathtaking downward spiral which should at least mirror the previous 90%+ decline. As trading volume has already cooled down somewhat and additionally some investors might have (hopefully) learned their recent lesson, it might take longer to sell the shares into the market this time which bodes well for an even deeper decline in the share price.
Don't expect the company and Kalani to waste any time and watch the share price start its renewed descent right at the start of Tuesday's regular trading session with basically unabated selling pressure continuing until the entire $200 mln in new equity will have been sold.
Based on the results of the last offering, shareholders need to prepare for roughly 90% dilution with the respective effects on the share price. As already discussed above, dilution and accompanying share price decline might be even higher this time due to overall lower trading volume and less starry-eyed retail investors willing to take another "Economou-class" trip.
Given the company's already low share price, DryShips will also have to utilize another reverse split rather sooner than later.
Once DryShips and Kalani will be done this time, the stock will most likely again offer a decent rebound chance as at the end of the last offering the stock was trading at below 50% of net asset value and more than made up for this discount in the sessions following the offering's close before retreating somewhat.
So, if things play out in a similar way than four weeks ago, investors first have a decent change for a 90% gain on the short side, followed up by a potential double on the long side, depending on the discount to net asset value after the new offering has closed.
With another $200 mln in expected proceeds for DryShips, expect George Economou to waste no time and sell more of his privately held, less attractive assets at a decent profit to the company rather sooner than later.
Bottom line:
As suspected, George Economou continues to strike the iron while it's still hot and consequently has orchestrated a third financing round with Kalani, potentially bringing the total proceeds for DryShips to $500 mln.
This latest offering actually provides a great setup for speculative investors and traders with major success almost being a given here.
The playbook is rather easy:
Get short the stock and watch the share price going down basically each session until the $200 mln in new equity has been successfully sold into the market - wait for the company's respective SEC-filing, divide the company's then net asset value of roughly $350 mln by the new number of shares outstanding and if the relentless selling by Kalani has indeed caused the shares to trade at a substantial discount to net asset value, switch into a long position which you should close when the assumed recovery rally starts to approach the net asset value.
Under a best case scenario, you would be able to make an up to 90% profit on the short side, followed up by another potential 100% gain on the long position.
On the flip side, given the obvious setup, shares might soon become hard to borrow, not to speak of the sizeable borrowing fee most likely charged to you by your broker. As it will take at least a few weeks for Kalani to sell another $200 mln in new shares into the market, the borrowing fee would have an impact.
Moreover, the trade will soon be crowded with shorts. Should DryShips / Kalani at some point decide to pause the selling or even cancel the offering, a violent short squeeze would clearly be in the cards.
While the setup looks as promising as it could be, it comes not without dangers so, as always, don't bet the farm and adequately manage your risk.
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