Safe Bulkers Stock Price: Solid Fundamentals Meet Bad Technicals

The Safe Bulkers stock price has been under pressure in the past few days as investors worry about the dry bulk shipping industry. SB shares are trading at $3.65, which is about 30% below the highest level this year. The company’s market cap has dropped to more than $444 million.

What is Safe Bulkers?

Safe Bulkers is a leading dry bulk shipping company that operates ships with a carrying capacity of about 180,000 dwt. It has 42 vessels that have an average age of 10 years. It has ordered 10 new ships that will be delivered in the next few years.

Safe Bulkers has a relatively simple business model. It procures ships and then enters long contracts with companies that need shipment. It ships commodities like corn, coal, bauxite, fertilizers, and steel. As a result, the company’s business has consistently been in demand in the past few years as demand for shipping has jumped.

As a result, Safe Bulkers’ revenue jumped from more than $124 million in 2018 to over $329 million in 2021. This makes it one of the fastest-growing companies in the industry. It is also a highly profitable company. In 2021, it made a profit of over $174 million.

The most recent results shows that Safe Bulkers saw its revenue rise to $77.7 million from $62.5 million in the same quarter in 2021. Its profit rose from $21.3 million to $36.4 million in this period. The company has been able to compensate the rising cost of doing business by increasing its prices. The cost of sea shipping has been surging in the past few months. Data shows that sea freight rates have risen by 300%.

Is Safe Bulkers a good investment?

The Safe Bulkers stock price has dropped sharply in the past few months for two main reasons. First, like high-tech companies like Affirm and Boxed, investors see it as a lockdown stock since demand surged during the pandemic. As a result, they expect that its demand will start to drop as the global economy reopens. 

Second, there are concerns about the soaring energy prices. Oil prices have surged in the past few months and analysts at JP Morgan believe that prices could surge to over $300 in the coming years. If this happens, dry bulk companies like Safe Bulkers will see lower profitability.

Still, there is a possibility that the SB stock price will continue to do well in the coming months. First, the company has a strong market share in the dry bulk industry. It is also expanding its fleet, which means that it will continue making more money.

Second, the company has a solid balance sheet. It has over $156 million in cash and total debt of $422 million. This means that there are no liquidity concerns. The CEO said:

“We delivered our balance sheet year over year by more than $200 million reducing our debt to comparable levels to our fleet’s scrap value, maintained significant balance sheet liquidity, and redeemed in April 2022 a portion of our 8% Preferred C shares.”

Third, I expect that the company will continue seeing more demand as the global economy recovers and prices of commodities drop.

Finally, the company is severely undervalued. It has a price-to-earnings ratio of 2.42, which is lower than the S&P 500 multiple of over 15. The same is true according to its peers like Diana Shipping, Grindrod, and Equity Bulk Shipping. The chart below shows how undervalued Safe Bulkers is.

Safe Bulkers stock valuation

Safe Bulkers stock price forecast

In the previous part, we saw that the Safe Bulkers share price is a bit cheap from a fundamental perspective. However, the story is significantly different when it comes to fundamentals. The daily chart shows that the SB stock price found a strong resistance at $5, where it has formed a triple top pattern.

In price action analysis, a triple-top pattern is usually a bearish sign. Further, the mini-death cross of 25-day and 50-day moving averages has happened while the Relative Strength Index (RSI) has pointed downwards. Therefore, the outlook for the stock is bearish, with the next key support being at $2.94. This price is the chin of the triple-top pattern and is about 20% below the current level.

Safe Bulkers stock price
Safe Bulkers stock price chart

Leave a Reply

Your email address will not be published.