Tuesday, October 28, 2014

Scorpio Bulkers Inc. - A Buying Opportunity With Some Strings Attached

  • Scorpio Bulkers has lost more than 50% or $700 million in market value since its IPO
  • SALT is adequately capitalized to meet its funding requirements in 2015.
  • Current share price represents a 100% profit potential over the next 12 months.
  • But risk of dilutive offerings to bridge equity gap in 2016 remains.

This year has been very grueling for shareholders of Scorpio Bulkers Inc. (SALT). The dry cargo shipping start-up spent most of 2013 and the beginning of 2014 like a drunken sailor, ordering 80 new-building vessels while raising a staggering $1.2 billion in equity. Its audacious fund-raising culminated with an oversubscribed IPO last December at $9.75 per share.

About three months after its market flotation the company’s shares started a gradual decline below its IPO level. Since the beginning of September the decline has been almost precipitous. On October 15th its shares briefly traded at an all-time intra-day low of $4.00 per share.

The stock price has rebounded since then but only so slightly. Last Thursday it closed at $4.72 per share. It is amazing to think that Scorpio Bulkers has lost almost $700 million in market capitalization since its IPO. Especially since the company has only taken delivery of one new-building vessel during the same period. Has the stock market overreacted to an admittedly very weak spot freight market? Has Scorpio Bulkers become a deep value play? What is the risk-reward profile for first time investors? In this article I hope to shed some light to all these questions...

Continue reading the article published on Seeking Alpha Pro.