Must-know: An overview of DryShips Inc. (Part 7 of 7)
EV/EBITDA (enterprise value/earnings before interest, taxes, depreciation, and amortization) is an important metric that is used in valuing comparable companies. It’s neutral to capital structure and is widely accepted—the lower the ratio the more undervalued the company is considered to be and vice versa. Also, the ratio removes any distortions due to accounting differences and taxes.
Meanwhile, EV and EBITDA can be adjusted to take into account the impact of operating leases, or chartered-in vessels. This would make for a fairer comparison between ship-owners and shipowner-operators. EV/EBITDA can be used to value companies, with the intention to take on debt to acquire strategic targets.
As compared to its peers—Navios Maritime Holdings (NM), Navios Maritime Partners (NMM), Safe Bulkers (SB), and Diana Shipping (DSX) recording forward EV/EBITDA of 9.8, 10.7, 9.2, and 12.2, respectively—DryShips recorded 6.5.
DryShips looks very attractive at a forward price-to-earnings (or P/E) ratio of just ten. A major positive to the company is the decreasing of losses at a tremendous rate. In fact, for the next five years, its bottom line is expected to grow at a compund annual growth rate (or CAGR) of 10%—a huge improvement over the annual drop of 54% seen over the last five years.
With DryShips claiming weather related disruptions affecting shipments, certain construction projects have been delayed in China. The South American harvest and shipping season is also delayed. However, for the third and fourth quarters growth is estimated to be robust.
Meanwhile, DRYS recorded forward P/E of 9.8 as compared to 8.4, 13.8, 21.5, and 22.9 recorded by SB, NM, NMM, and DSX, respectively.
Browse this series on Market Realist:
- Part 1 - Must-know: A dry bulk overview of DryShips Inc.
- Part 2 - Overview: DryShips’ Ocean Rig and operating strengths
- Part 3 - Overview: DryShips’ fleet management and 1Q earnings turnaround
- Investment & Company Information