The shipping business is highly leveraged to slight changes in global trade, so the early stages of the slowdown have absolutely crushed the industry. On CNBC today, we caught Morten Arntzen, CEO of Overseas Shipholding Group (OSG), talking shop with Bill Griffeth.
OSG has done better than some — the stock is off a mere 51% from its highs — but Arntzen was incredulous that his company could trade at a PE somewhere in the ballpark of 2. You don’t get to be CEO of a shipping company without some knowledge of this business, so we think Arntzen was acting delibaretly naive.
At this point, PEs for these companies are totally usless. Back in April, DryShips was trading at a forward PE (ha!) of 3.5. The stock is down about 83% since then, as the outlook evaporated. The collapse of the Baltic Dry Index and the general overcapacity facing the industry means that without some firming in global growth, there’s going to be a lot of red ink… you could see ships leaving the docks, carrying cargo at a loss.
Meanwhile, Griffeth asked what had to have been one of the most bizarre questions we’ve heard in a while, when he asked about the correlation between OSG and oil, and whether the falling price of oil might be good for OSG’s business. As you can see, yes, both oil and OSG have fallen in tandem, but they’re not exactly correlated. OSG doesn’t care how oil is priced — but both oil and OSG rise and fall on volume demand. So a fall-off in demand will hit oil prices and OSG’s busienss, making it look like the two are linked.
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