Oklahoma based gas driller Chesapeake Energy Corporation (CHK Stock Report) has had a rollercoaster ride over the past year or so. The energy penny stock‘s price fluctuated wildly during that period. Back in 2018, the CHK stock had soared by 35% but then came crashing down in conjunction with the drop in oil prices. Eventually, the company’s stock ended the year with a 47% decline and the same pattern could be developing in 2019 as well.
There was a time this year when Chesapeake Energy had climbed by as much as 50%. Then it repeated the events of 2018 and nosedived again. Hence, any investor who is planning to invest in penny stocks like this due to its potential to climb again should look at the deeper issues in the company before taking the plunge.
Energy Penny Stock: CHK’s Bull Case
As far as a bull case is concerned, the single most important factor that makes Chesapeake Energy an attractive proposition is that the company has managed to improve its financial situation considerably. Over the past few years, the company has sold off plenty of assets and has given the company the chance to improve its business operations considerably.
The acquisition of WildHorse Resource Development was a direct result of its improving financial health. Also, it’s a highly strategic move since it will help Chesapeake with its oil production targets. Improved cash generation will definitely help the company in approaching their goals much more confidently.
Energy Penny Stock: CHK’s Bear Case
However, on the other hand, there are certain factors that make the case for bears as well. The company is currently spending beyond its means in order to fuel its growth and if the oil price goes down, then it will struggle to operate efficiently. In other words, a high oil price is crucial for Chesapeake. The company is trying to cut down its leverage ratio and wants to reduce debt to lower than twice that of EBITDA.
However, even that is a high ratio considering the fact that other companies in the industry have a target of 1.0 to 1.5. The mounting debt will continue to have an effect on the stock. Hence, according to most experts, the stock is still regarded as too risky an investment.