A few years ago Chesapeake Energy Corporation (NYSE:CHK) was one of the market’s hottest stocks. From 2003 until its peak in 2008, the company’s shares, fueled by a rise in natural gas, went up by more than 700%. Since its peak in July of 2008 shares are off by nearly 70%. With so many investors being burned over the past five years, no wonder the company is hated by investors.
That hate has turned some investors to actively bet against the company’s future success. At last count, 13.5% of its outstanding shares were sold short. While the short interest is down slightly from the end of last year, investors still hate this stock. Are these investors too focused on the past to miss a potentially exciting future?
Why it’s hated
I’ll be honest with you, there are some good reasons to hate this stock. Under the leadership of CEO Aubrey McClendon the company has undergone an ambitious growth phase which enabled it to become the nation’s No. 2 natural gas producer. The problem here is that its growth came at a great cost as the company took on massive amounts of debt. With the plunge in natural gas prices, the company is having trouble managing this heavy debt load while also investing to grow.
In order to fund its capital expenditures Chesapeake Energy Corporation (NYSE:CHK) has turned to selling off assets to make ends meet. Last year the company sold its interest in Access Midstream Partners LP (NYSE:ACMP), along with a host of other assets, in an effort to raise billions in cash. Chesapeake is planning to sell $4 billion-$7 billion more in assets in the year ahead. It already sold a portion of its Mississippian Lime acreage to a Chinese national oil company and has put its stake in Clean Energy Fuels Corp (NASDAQ:CLNE) up for sale. The concern here is that the company’s precarious debt position is forcing it to sell these assets at fire-sale prices.
While the company labels these sales as non-core, the assets are top-notch. Access Midstream Partners LP (NYSE:ACMP) for example is a stable, low-risk, cash flow asset. Clean Energy Fuels Corp (NASDAQ:CLNE) just happens to be the company behind America’s Natural Gas Highway and is helping to spur the growth of natural gas demand. For investors shorting the stock, they see a debt-laden company that needs to sell excellent assets in hopes that those asset it keeps turn out to be worth more in the long run.