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Chesapeake Energy (CHK) Stock is Surging: Should you Buy it?

Maher Syed

Chesapeake Energy CHK shares are up 27% today, and are up 66.67% so far in March.  It is clear that the stock has rallied immensely.  However, if the stock surges like this again tomorrow, there are massive potential profits to reap.  So should you buy the stock?

Like other oil and gas companies, Chesapeake is benefiting from higher oil prices today.  However, most of the stock’s surging is stemming from the company’s expectation that it will not be indicted for rigging bids to buy oil and natural gas leases in Oklahoma.  There is no definitive indication as to whether or not the company will be penalized over the rigging allegations.

When looking at fundamentals, one must ask if Chesapeake looks like a buy right now.  The company has a net margin of -129.55%, so its profit has eroded even more than the industry’s average net margin of -109.85%.  It would seem that the company’s profits are more sensitive than its fellow energy peers' margins.  Companies in the energy sector are suffering from lower oil prices, which are decimating profit margins.

The company has a debt/capital of 81.2%, which shows how the company is marred in debt compared to its peers, who have a collective debt/capital of 48.21%.  The company’s sales are projected to decrease by -22.93% this year.  For the current quarter, three analysts have revised their earnings estimates upwards in the last 60 days.  Over that same span of time, 6 analysts have revised their earnings estimates lower.

CHK is a Zacks Rank #3 (Hold).  While the company’s share price is building momentum, there’s a good chance it won’t last.  Furthermore, there is no guarantee that the company won’t be penalized for bid rigging.  This is what the market is betting on right now, so it would be wise to avoid buying the stock and getting caught up potentially volatile trading over the short term.

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