Today's Water-Logged And Getting Wetter Stock: Chesapeake Energy (CHK)

Editor's Note: Any reference to TheStreet Ratings and its underlying recommendation does not reflect the opinion of TheStreet, Inc. or any of its contributors including Jim Cramer.

Trade-Ideas LLC identified Chesapeake Energy ( CHK) as a "water-logged and getting wetter" (weak stocks crossing below support with today's range greater than 200%) candidate. In addition to specific proprietary factors, Trade-Ideas identified Chesapeake Energy as such a stock due to the following factors:

  • CHK has an average dollar-volume (as measured by average daily share volume multiplied by share price) of $345.7 million.
  • CHK has traded 21.7 million shares today.
  • CHK traded in a range 291% of the normal price range with a price range of $1.80.
  • CHK traded below its daily resistance level (quality: 6 days, meaning that the stock is crossing a resistance level set by the last 6 calendar days. The resistance price is defined by the Price - $0.01 at the time of the signal).

Stocks matching the 'Water-Logged and Getting Wetter' criteria are worthwhile stocks to watch for a variety of factors including historical back testing and volatility. Trade-Ideas targets these opportunities because the stock is exhibiting an unusual behavior while displaying negative price action. In this case, the stock crossed an important inflection point; namely, "support" while at the same time the range of the stock's movement in price is twice its normal size. This large range foreshadows a possible continuation as the stock moves lower.

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More details on CHK:

Chesapeake Energy Corporation engages in the acquisition, exploration, and development of properties for the production of oil, natural gas and natural gas liquids (NGL) from underground reservoirs in the United States. The stock currently has a dividend yield of 2.1%. CHK has a PE ratio of 8.8. Currently there are 5 analysts that rate Chesapeake Energy a buy, 4 analysts rate it a sell, and 11 rate it a hold.

The average volume for Chesapeake Energy has been 22.5 million shares per day over the past 30 days. Chesapeake Energy has a market cap of $10.9 billion and is part of the basic materials sector and energy industry. The stock has a beta of 1.05 and a short float of 26.4% with 6.28 days to cover. Shares are down 16.2% year-to-date as of the close of trading on Tuesday.

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TheStreetRatings.com Analysis:

TheStreet Quant Ratings rates Chesapeake Energy as a hold. The company's strengths can be seen in multiple areas, such as its revenue growth, largely solid financial position with reasonable debt levels by most measures and compelling growth in net income. However, as a counter to these strengths, we also find weaknesses including a generally disappointing performance in the stock itself and weak operating cash flow.

Highlights from the ratings report include:
  • The revenue growth greatly exceeded the industry average of 33.1%. Since the same quarter one year prior, revenues rose by 11.2%. Growth in the company's revenue appears to have helped boost the earnings per share.
  • The debt-to-equity ratio is somewhat low, currently at 0.68, and is less than that of the industry average, implying that there has been a relatively successful effort in the management of debt levels. Along with the favorable debt-to-equity ratio, the company maintains an adequate quick ratio of 1.09, which illustrates the ability to avoid short-term cash problems.
  • CHESAPEAKE ENERGY CORP reported significant earnings per share improvement in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past two years. However, we anticipate underperformance relative to this pattern in the coming year. During the past fiscal year, CHESAPEAKE ENERGY CORP increased its bottom line by earning $1.83 versus $0.68 in the prior year. For the next year, the market is expecting a contraction of 110.1% in earnings (-$0.19 versus $1.83).
  • CHK's stock share price has done very poorly compared to where it was a year ago: Despite any rallies, the net result is that it is down by 42.01%, which is also worse that the performance of the S&P 500 Index. Investors have so far failed to pay much attention to the earnings improvements the company has managed to achieve over the last quarter. Turning toward the future, the fact that the stock has come down in price over the past year should not necessarily be interpreted as a negative; it could be one of the factors that may help make the stock attractive down the road. Right now, however, we believe that it is too soon to buy.
  • Net operating cash flow has decreased to $829.00 million or 21.27% when compared to the same quarter last year. Despite a decrease in cash flow CHESAPEAKE ENERGY CORP is still fairing well by exceeding its industry average cash flow growth rate of -42.26%.

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