It is observed that the energy generating company, Chesapeake Energy Corporation (NYSE:CHK), has showed an incline in the starting of August. The organization showed an unexpected improvement and experts believed that this will last for some time only. The Relative Strength Index (RSI) for the stock indicates it to be oversold.
The stock again showed its downward trend. Around 6% slide was observed since August 7, and the RSI has showed an incline to 46.31. Currently, the CHK stock is trading at an excellent position in a range between 30 to 70 and mentions that it is neither exaggerated nor overbought.
There are many factors that caused the stock prices to fall, starting with China, which always bring a significant impact. The country is suffering from a slowdown in the progress of its manufacturing sector, which is the main reason for the fall in demand for commodities globally.
On Monday, the world observed an international equity sell off last week, which also failed China’s devaluation policy. At the same time, crude oil dropped by 50% since the second quarter of the past year and natural gas prices declined over 30%.
The organization had to revise and maintain its balance sheet according to the macroeconomics integrals. A fall in the commodity prices affects and causes severe liquidity issues for the company. Chesapeake is highly leveraged and has to derive the ways to decrease the credit level. It is highly advantaged as its gearing ratio exceeds 50%. During the second fiscal quarter of the current year, it has showed a high rise to 112.70% from 63.02%.
With respect to the latest data release, the financial investors are doubtful over purchasing the company’s share. The information reveals that the short interest for the organization reached the height of 207.24 million shares from 201.34 million, reaching its 52 weeks high.
Chesapeake’s future performance in the stock market depends on the systematic and unsystematic factors. Happenings, such as fall in commodity prices, are a systematic factor. Currently, it is looking forward to manage ways to decrease its debt load as soon as possible and improve its liquidity position. It received the consensus price target for the stock at $11.06 per share, with the return potential of 45.7%.
The company wants to follow the rise observed during the past month and maintain similar improvement in the future, and for that, they are trying hard to proceed further and beat the analysts’ anticipations, including those who expect that the improvement is temporary.