Why Star Bulk Carriers Corp Stock Surged Ahead 70% in January

By Rich Smith Markets Fool.com

What happened

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Shares of dry bulk ocean shipper Star Bulk Carriers Corp (NASDAQ: SBLK) surged 70% in the first month of the new year, rising from $5.11 to $8.69. Impressive as this result was, the surge appears to be continuing -- with Star Bulk up a further 5% in February.

So what

Wall Street spent much of the month of January upgrading shares of dry bulk shippers (with the notable exception of the industry's poster boy, DryShips (NASDAQ: DRYS). And yet, at the same time, an investor can't help but notice that the single most important factor predictive of these companies' success -- the Baltic Dry Index that tracks the rates shippers can charge for carrying their cargo -- has been trending down, not up.

The BDI entered 2017 at a level of 953, well below its 1,000-point reference point, and things have only gotten worse since then. Over the past six weeks, the BDI has sunk 21%. And the index's recent low of 752 is only continuing the trend down.

Star Bulk is sailing into stormy seas. Image source: Getty Images.

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Now what

None of this bodes very well for Star Bulk Carriers stock continuing its run. To the contrary, Star Bulk appears to be driving directly into the face of a stormy sea of worsening shipping rates.

True Star Bulk may fare better than many of its rivals, having successfully managed a placement of 6.3 million shares last week, which raised $50.6 million in capital for the company. But it's also true that, had Star Bulk waited until today to sell those shares, it could have netted itself another $6 million or so, as the share price continues to climb.

The harder it gets to earn a profit shipping cargo at lower rates, the more Star Bulk is going to regret leaving those last $6 million on the table.

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Rich Smith has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.