With Low Oil Prices and High Debt, This Stock Is Toast

Sadly, this stock is merely delaying the inevitable…

This story was originally published here.

Given the economic devastation resulting from the novel coronavirus, red has become a common color in the investment markets. But for beleaguered energy firm Chesapeake Energy (NYSE:CHK), it may be a permanent one. In short, this is an organization that has completely lost control of its trajectory. Therefore, barring a miracle, CHK stock will probably deteriorate into nothing.

Early last week, Chesapeake executed a 200-for-1 reverse stock split. Frankly, all this did was to temporarily shock those who haven’t been paying attention to CHK stock daily. Also, management bought some time to prevent shares from getting delisted from the New York Stock Exchange. Clearly, though, these are the actions of a desperate company fighting for its life.

I don’t blame the leadership team for getting the reverse stock split done. I’d do the same because honestly, that’s the only move available. I liken the situation to a football game where the opposing coach burns through their timeouts in the off chance that something, anything, could happen.

Again, barring some divine intervention, CHK stock is done. Combined with previously bad decisions and painful concessions to stay alive, Chesapeake is walking a tight rope. Further, that rope is shortening as the company risks breaching its debt covenants.

Unfortunately, the only hope here is to see a recovery in oil prices. But as I’ve stated many times, the issue isn’t about supply. OPEC and its cronies could cut production to zero. Without demand, even the big boys like Exxon Mobil (NYSE:XOM) and Chevron (NYSE:CVX) will suffer volatility.

An embattled outfit like Chesapeake? Unless you just want to burn your stimulus check, I’d stay far away from CHK stock.

Editor's Note: Click here to see why.

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