Going long Chesapeake Energy Corporation (NYSE:CHK) stock, which has lost more than 48% in 2017, has been painful lesson for CHK stock holders who have attempted to catch this falling knife.

But with CHK shares recently falling below $4, which I predicted on more than one occasion, investors want to know if it’s time to rethink the short strategy?

Time to Go Long CHK?

Aside from the punishment, CHK has suffered this year, the stock is down 36% over the past twelve months, while plunging more than 85% over the past three years, underperforming the S&P 500 Index during both spans. And if you’ve only bought and held Chesapeake stock over the past five years, you’re down a whopping 80%.

In other words, only short sellers, who have bet on Chesapeake’s failure, have been the ones making money on CHK stock. Because of its ties to natural gas prices, the Oklahoma City, OK-based company has been hurt amid the fall of energy prices, which has sent the Energy Select Sector SPDR (ETF) (NYSEARCA:XLE) down roughly 17% this year. Concerns about global oversupply of oil has pressured WTI Crude prices to stay below $50 per barrel, compared to over $100 five years ago.

And given Chesapeake’s lack of business diversification, compared to, say, BP plc (ADR) (NYSE:BP), Exxon Mobil Corporation (NYSE:XOM) and Chevron Corporation (NYSE:CVX), CHK has limited routes to navigate this trough. And unfortunately, the company’s recent earnings report suggests there are no near-term solutions to help reverse the trend. And I say this realizing that the company has delivered an adjusted profit in its last two quarters.

Chesapeake Energy Posting Artificial Profits

For Chesapeake, the company’s previous poor performances continue to haunt the business. For instance, in the second quarter, Chesapeake Energy posted a sizable profit of $470 million, resulting in earnings-per-share of 18 cents, which beat Street estimates by 3 cents — the company’s second straight earnings beat.

While operational improvements did contribute to the profit increase and bottom-line beat, the main driver was past impairment charges that artificially boost profits. During the quarter, the company’s earnings of $146 million was driven by a combination of a $202 million and debt purchases of around $191 million. Plus, Chesapeake Energy had the benefit of impairment charges of the $115 million loss it posted in the seance quarter of 2016.

In other words, very little of the second-quarter profit was the result of strong operating metrics. For example, second-quarter production of 528,000 barrels of oil-equivalent per day was flat sequentially and down almost 20% from the 657,000 production number in Q2 of 2016.

On the bright side, the production decline was due to divestments, where the company is looking to offload none-core assets.

At the same time, during the quarter capital spending, which grew more than three times depreciation charges, reached $667 million. And CHK, which has roughly $10 billion net debt, is still expected to increase 2017 spending by almost 30% (midpoint), based on its target spending range of $1.9 billion to $2.5 billion. That’s not a good combination for CHK stock, given the state of oil prices.

Can CHK Stock Make a Comeback?

The extent to which Chesapeake Energy can mount a meaningful recovery in a brutal environment for oil prices is the biggest factor affecting the company. The company’s high net debt level makes CHK highly speculative, unlike Exxon and Chevron. Plus, unlike natural gas peers such as Murphy Oil Corporation (NYSE:MUR) or Cheniere Energy, Inc. (NYSEMKT:LNG), Chesapeake’s “real earnings” are not that attractive when taking a deeper look, as we just did.

Looking ahead, CHK will report third-quarter fiscal 2017 earnings results in November. Wall Street expects earnings of 15 cents per share on revenue of $2.19 billion. This compares to the year-ago quarter when the company earned 9 cents per share on $2.28 billion in revenue. The fact that EPS is expected to rise 66% is encouraging. But, Chesapeake will nonetheless suffer unless oil prices rise towards $55 to $60 per barrel and remain there for an extended period of time.

Bottom Line: Aside from weak oil prices, the company’s plans to increase capital expenses by almost 30% suggests CHK, driven by its debt, will remain speculative for the next several quarters. As such, investors who are looking to play a potential recovery in oil should avoid the appeal of CHK’s cheap price and seek companies that are better capitalized.

In other words, CHK is still a good short.

As of this writing, Richard Saintvilus did not hold a position in any of the aforementioned securities.