Chesapeake Energy Corporation (NYSE:CHK), a US$4.32B mid-cap, is an oil and gas company operating in an industry which has seen a prolonged oil price downturn since 2014. However, energy-sector analysts are forecasting for the entire industry, a positive double-digit growth of 24.28% in the upcoming year , and a whopping growth of 61.73% over the next couple of years. This rate is larger than the growth rate of the US stock market as a whole. Is now the right time to pick up some shares in oil and gas companies? Today, I will analyse the industry outlook, as well as evaluate whether Chesapeake Energy is lagging or leading its competitors in the industry. View our latest analysis for Chesapeake Energy
What’s the catalyst for Chesapeake Energy’s sector growth?
The oil and gas sector has been negative 40% in the past five years, due to the oil price crash. Although profitability is always a key metric, in the oil and gas industry, growth in production and reserves has often been more important. Only now has the sector begun to emerge from its turmoil, and in the previous year, the industry saw growth in the twenties, beating the US market growth of 13.66%. Chesapeake Energy lags the pack with its which indicates the company will be growing at a slower pace than its energy peers.
Is Chesapeake Energy and the sector relatively cheap?
Oil and gas companies are typically trading at a PE of 13.85x, relatively similar to the rest of the US stock market PE of 18.53x. This means the industry, on average, is fairly valued compared to the wider market – minimal expected gains and losses from mispricing here. Furthermore, the industry returned a similar 11.31% on equities compared to the market’s 11.19%, potentially illustrative of a turnaround. On the stock-level, Chesapeake Energy is trading at a lower PE ratio of 4.33x, making it cheaper than the average oil and gas stock.
Chesapeake Energy is an energy industry laggard in terms of its future growth outlook. This is possibly reflected in the PE ratio, with the stock trading below its peers. If the stock has been on your watchlist for a while, now may be the time to dig deeper. Although the market is expecting lower growth for the company relative to its peers, Chesapeake Energy is also trading at a discount, meaning that there could be some value from a potential mispricing. However, before you make a decision on the stock, I suggest you look at Chesapeake Energy’s fundamentals in order to build a holistic investment thesis.
- Financial Health: Does it have a healthy balance sheet? Take a look at our free balance sheet analysis with six simple checks on key factors like leverage and risk.
- Historical Track Record: What has CHK’s performance been like over the past? Go into more detail in the past track record analysis and take a look at the free visual representations of our analysis for more clarity.
- Other High-Growth Alternatives : Are there other high-growth stocks you could be holding instead of Chesapeake Energy? Explore our interactive list of stocks with large growth potential to get an idea of what else is out there you may be missing!
To help readers see pass the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned.