Ship Finance International's Shares Plunged: What You Need to Know

Before you go, we thought you'd like these...
Before you go close icon

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of global shipper Ship Finance International (NYS: SFL) lost steam today, falling as much as 10.3% on fairly heavy volume.

So what: Over the weekend, Financial Times published a study of the shipping industry's dire financial straits. According to the story, nearly every shipper is in violation of loan covenants today and that raises the dual specter of consolidation and potential bankruptcies in the industry.

Now what: So why did Ship Finance fall far faster than DryShips (NAS: DRYS) or Teekay (NYS: TK) ? For one, Ship Finance's balance sheet is more leveraged, with total debt 240 times larger than the equity against which it's supposed to be balanced. Lehman Brothers would have killed for leverage like that. I wouldn't necessarily join the very large cohort of short-sellers here, because you just never know when the tide might turn and swamp your shorts, but I'd also advise you to stay clear of that oh-so-tempting 16% dividend payout. If something looks too good to be true, it probably is.

Interested in more info about Ship Finance International? Click here to add it to My Watchlist.

At the time this article was published Fool contributor Anders Bylund holds no position in any of the companies mentioned. We Fools may not all hold the same opinion, but we all believe that considering a diverse range of insights makes us better investors. Check out Anders' holdings and bio, or follow him on Twitter and Google+. We have a disclosure policy.

Copyright © 1995 - 2011 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

Read Full Story

Want more news like this?

Sign up for Finance Report by AOL and get everything from business news to personal finance tips delivered directly to your inbox daily!

Subscribe to our other newsletters

Emails may offer personalized content or ads. Learn more. You may unsubscribe any time.

From Our Partners