Why did Chesapeake Energy soar by 200%?

Chesapeake Energy Corporation (NYSE: CHK) plummeted because of the nightmarish oil scenario. However, the recent turnaround in the future outlook for oil is causing the Energy Giant to skyrocket. Especially, as OPEC + Russia agree to extend to historic oil cuts to July in an attempt to stabilise the market.

The rally was that insane that CHK endured 22 trading holts. However, it seems the bulls are about to fall off the cliff edge during today’s trading.

Is CHK’s bankruptcy a bearish alarm?

The Shale giant CHK is preparing a possible bankruptcy application. Bankruptcy would see senior leaders gain a significant amount of equity in CHK – “according to people with knowledge of the matter”.

The matters could change, and CHK does not end up filing for bankruptcy. However, CHK is down 40% (pre-market). Meaning even if CHK does not file an application the speculation has already caused an irreversible sell-off. Imagine the size of the decline if CHK entered bankruptcy.

 

Is CHK worth the investment?

Before I start, I am obliged to remind our viewers that this is not advice only general commentary from my extensive research in this area.

Short answer: no, there are more fish in the sea.

First of all, CHK declined by 95% in the past five years. Short investors need to put that into perspective when investing in Chesapeake. CHK were already struggling before the pandemic and oil crisis. The positive oil recovery won’t save the business (opinion not advice). Also, Chesapeake executed a reverse stock split on May 12th. Because CHK was trading below $1, and thus were vulnerable to being delisted. Actioning a reverse stock split and trading at a 95% decrease screams an unviable business model. Hence, long term investors should avoid CHK.

However, CHK is more like a magnet for day traders who want to make unrealistic profits. Honestly, it seems the bankruptcy speculation, five year bearish decline, and CHK’s unhealthy balance sheet is causing the bears to breed.

Thus the sell-off is a combination of investors offloading gains and loss aversion infiltrating the mind of recent buyers.

Overall, “bears and bulls make money, but pigs get slaughtered” (Wall Street – Gordon Gekko). Investors shorting and investors who rode this week’s wave are the likely winners. Investing now could evapourate your hard-earned money.

I would suggest not looking into CHK because there is little upside. Instead diverting your eyes to the financially stronger oil behemoths like Chevron, Exxon Mobil and Royal Dutch Shell is a much wiser decision (opinion not advice).

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The information above is not financal advice. Youth Investment Group has no liability for personal financial interests or investment decisions. You should make your own investment decisions based upon your own research and what you believe is best for you.

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Written by Patrick McLoughlin, Senior Manager of YIG.

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