NEW YORK (TheStreet) -- Warren Buffett once said, "When a management team with a reputation for brilliance tackles a business with a reputation for poor economics, it is the reputation of the business that remains intact." Sometimes, though, we are asked to judge the inverse case: a sound business under poor management. What part of its reputation survives?Such is the case for natural gas and oil company Chesapeake Energy ( CHK) and its embattled CEO, Aubrey McClendon. As "questionable" as McClendon's recent decision-making has been, the fundamentals of the company remain solid.
Overall things could have been a lot worse and this is something investors need to understand. It is no secret that energy companies -- and in particular those that focus on natural gas have had some challenges this year due to fallen shale demand. As a result natural gas prices have dropped an average 55%, from $5.31 a year ago to $2.35 today. But it is not because Chesapeake has not been working to mitigate this situation. The company has invested in oilfields in an attempt to increase crude production, as well as diversifying its offerings. When the company announced plans back in January to help improve the fundamentals of the natural gas market, it said it would reduce the number of rigs it had operating -- representing a cut of 50% by the second quarter. At the time, it seemed a bit aggressive. However looking at the results today, it appears not only that the company had the right idea, but perhaps it was a bit underestimated. What this tells me is that for as much criticism as the company's management has received for some "internal indiscretions," the company deserves a considerable amount of credit for having been the first to assess what was hurting the industry and acting appropriately to lessen the impact -- a move that many other companies soon followed.
It is unlikely the fundamentals of Chesapeake changed drastically enough to justify this punishment. Instead, investors have been driven by fear - perhaps justified. But it's time for greed to take over. The stock trades at a price-to-earnings ratio of only 8 while names such as EOG Resources ( EOG) and Range Resources ( RRC) carry multiples of 27 and 270 respectively. Another comparison is Console Energy ( CNX). While the company is fundamentally sound in its own right, its P/E of 14 is still almost twice that of Chesapeake and it offers a smaller dividend. 6 Stocks to Benefit From Truckers' Switch to Natural Gas >> To top it all off, in terms of profitability, Chesapeake offers both higher profits and operating margins than each of these names that sports higher multiples. Say what you want about McClendon's "internal affairs" but absent some gross SEC violations it is hard to not see this as an opportunity to be greedy.