Is The Energy Sector Signalling Chesapeake A Penny Stock To Buy Or Sell Right Now?
Over the years plenty of investors have managed to make a lot of money with penny stocks. The reasons are easy to understand. An investment in a penny stock doesn’t take a large investment but allows the investor to hold a substantial number of stocks.
If and when the company grows, the stock rises in price as well. It can only take a few pennies to see significant percentage gains from these cheap stocks. But you also need to understand how to manage risk. Take Chesapeake Energy (CHK Stock Report) for instance.
The energy penny stock has been on a rollercoaster ride over the last year. Just think, around this time in 2018, CHK stock was trading around $5. Today, CHK is trying to hold above $1. Based on recent events in the industry and the stock, is it time to buy this penny stock or are shares slated to slide lower?
Penny Stock To Buy Or Sell: Chesapeake Energy Corporation (CHK)
Earlier in September, oil exploration company Chesapeake Energy rose by 16% following the strikes in the Saudi Arabian oil facilities. However, during the course of the following 2 weeks, Chesapeake stock nosedived by as much a 33%. It is interesting to take a closer look at the stock and see if there is anything salvageable.
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One of the bigger reasons behind the company’s actual decline was the fact that after having fallen down the pecking order among natural gas companies, it made a shift to oil exploration. The switch may be explained by the higher prices of oil as opposed to that of natural gas. But the switch has resulted in weakening the company.
Chesapeake’s Debt Burden: Too Hot To Handle?
Oil prices may be positive, but Chesapeake’s debt burden of $9.7 billion will be a red flag for most investors. Moreover, it has a debt to equity ratio of a whopping 3.8. At this point in time, it has levered free cash to the tune of negative $648 million and that is another significant shadow over the company’s eventual future.
That being said, it’s also important to note its production costs are actually on the decline. Its production rose by 36% year over year in Q2 2019 to 122,000 barrels per day.
On the other hand, the cost of producing each barrel was reduced by 40 cents as well. Despite all that, analysts believe that in an inherently volatile market like the oil market, an investment in a highly leveraged company like Chesapeake might not be the best decision.
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