Shareholders in Chesapeake Energy (NASDAQ:CHK) are in the red if they invested a year ago
The simplest way to benefit from a rising market is to buy an index fund. But if you buy individual stocks, you can do both better or worse than that. Unfortunately the Chesapeake Energy Corporation (NASDAQ:CHK) share price slid 11% over twelve months. That contrasts poorly with the market return of 15%. Chesapeake Energy hasn't been listed for long, so although we're wary of recent listings that perform poorly, it may still prove itself with time.
It's worthwhile assessing if the company's economics have been moving in lockstep with these underwhelming shareholder returns, or if there is some disparity between the two. So let's do just that.
View our latest analysis for Chesapeake Energy
To paraphrase Benjamin Graham: Over the short term the market is a voting machine, but over the long term it's a weighing machine. One way to examine how market sentiment has changed over time is to look at the interaction between a company's share price and its earnings per share (EPS).
Chesapeake Energy managed to increase earnings per share from a loss to a profit, over the last 12 months.
Earnings per share growth rates aren't particularly useful for comparing with the share price, when a company has moved from loss to profit. But we may find different metrics more enlightening.
Chesapeake Energy's dividend seems healthy to us, so we doubt that the yield is a concern for the market. From what we can see, revenue is pretty flat, so that doesn't really explain the share price drop. Unless, of course, the market was expecting a revenue uptick.
The image below shows how earnings and revenue have tracked over time (if you click on the image you can see greater detail).
Chesapeake Energy is well known by investors, and plenty of clever analysts have tried to predict the future profit levels. If you are thinking of buying or selling Chesapeake Energy stock, you should check out this free report showing analyst consensus estimates for future profits.
What About Dividends?
As well as measuring the share price return, investors should also consider the total shareholder return (TSR). Whereas the share price return only reflects the change in the share price, the TSR includes the value of dividends (assuming they were reinvested) and the benefit of any discounted capital raising or spin-off. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. As it happens, Chesapeake Energy's TSR for the last 1 year was -2.5%, which exceeds the share price return mentioned earlier. The dividends paid by the company have thusly boosted the total shareholder return.
A Different Perspective
Given that the market gained 15% in the last year, Chesapeake Energy shareholders might be miffed that they lost 2.5% (even including dividends). However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. It's great to see a nice little 1.4% rebound in the last three months. This could just be a bounce because the selling was too aggressive, but fingers crossed it's the start of a new trend. While it is well worth considering the different impacts that market conditions can have on the share price, there are other factors that are even more important. Consider for instance, the ever-present spectre of investment risk. We've identified 4 warning signs with Chesapeake Energy (at least 2 which shouldn't be ignored) , and understanding them should be part of your investment process.
But note: Chesapeake Energy may not be the best stock to buy. So take a peek at this free list of interesting companies with past earnings growth (and further growth forecast).
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on American exchanges.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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