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Apr
26
Jonathan Yates
Is Chesapeake Energy a Stock to Buy on the Dips?
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For those who have missed the surge in natural gas (NYSE: UNG), buying Chesapeake Energy (NYSE: CHK) could be a way to ride the wave of the clean energy soaring in value.  As the chart below shows, the UNG as doubled while Chesapake Energy has trailed behind, due to corporate governance issues. This is particularly so in recent market action.

 

But there is much to like about Chesapeake Energy.  It is selling below book value.  On a quarterly basis, sales are up almost 30%.  For the next year, analysts are projecting an increase in earnings of more than 40%.   The gross margin is over 40%.  In a show of strength, insider ownership is close to 80%, which is very bullish.

There is also much to be concerned about regarding Chesapeake Energy.  The company is carrying a great deal of debt.  It is also losing money, with a negative profit margin of 4.82%.  The operating margin is a negative 15.38%; and the returns on equity, assets, and investment are all negative, too.

Down 6.59% for the month, Chesapeake Energy has rallied in recent market action.  For the last week of trading, it has jumped 1.69%.  For 2013, it is higher by 17.13%.  There is a dividend of 1.82% that pays shareholders to wait for it to catch up with others its sector.  As the chart below shows, Chesapeake Energy is a volatile stock, with an above average beta of 1.34.  But with the outlook for natural gas, it could be an ideal stock to buy on the dips and hold for the long term.

Now trading around $19.30, the mean analyst target price for Chesapeake Energy over the next year is $22.64.



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