Why Star Bulk Carriers (SBLK) Is A Value Stock For Rebound Investors by Darren Samson, Perlmeter.com
Star Bulk Carriers Corp (SBLK) is a dry bulk shipping company that I think any value investor should pay attention to. This is especially true if you like beaten-up turnarounds with a lot of upside.
Dry bulk shipping means they transport cargo such as coal, iron ore and grain. The company was incorporated in 2006, and became the largest dry bulk shipper in 2014 when they took over Oceanbulk Shipping. Excel Maritime, a different dry bulk shipper, went bankrupt and Star Bulk purchased all of their ships.
The company currently has 70 ships in operation and 26 on order. China’s growth in the mid-2000s created a spike in demand for the shipments of dry bulk cargo. Surprisingly, the recession had only a small effect on the industry.
But as dry bulk prices soared, shipping companies took that as a sign to expand. Unfortunately, Chinese demand plummeted which sent some dry bulk shippers to their deathbed. Things haven’t gotten better for dry bulk prices since 2012. Yet Star Bulk has still been able to survive.
And it looks like they’ll continue to do so. The company reported negative earnings, but they have an extremely well connected and savvy management team. Not to mention management has a significant ownership stake in the company.
Star Bulk’s fleet is one of the newest in the industry. This isn’t just good for attracting business, but it also keeps operating expenses low. And management has done a good job of this too. Since 2010, administrative expenses have been reduced by 36%.
Not all of Star Bulk’s numbers will appeal to value investors. Their price-to-book is only 0.34, but they have a price-to-sales of 2.67. Quarterly revenue is growing, but they still have a negative return on equity. It’s safe to say this isn’t for anyone who won’t consider leveraged companies.
But I think Star Bulk isn’t that risky when you get down to it. The company performs a function that is necessary for international trade. Commodity prices have been sinking, which should spur growth in the shipment industry within the next year or so.
At this point, it’s a matter of when the dry bulk shipping industry begins to rebound – not if. Not only is Star Bulk in a distressed industry, but they operate as a Greek-stock which surely adds to their lack of coverage. Star Bulk’s twelve month range is 2.56-15.62.
With a market cap of just $680 million, this position is too risky for large money managers. But not everyone is passing up on it. Oaktree Capital, one of the most prominent value funds today, owns more than 50% of Star Bulk stock.
Star Bulk is operating in a tough industry, which may cause their share price to sit idle for a while. But I believe the long-term upside is too good to pass up.
Note: The writer has a long-position on SBLK.