Chesapeake Energy Corporation (NYSE:CHK) stock continues to struggle, along with its energy peers. Support for CHK stock had held at $5 multiple times. But a downgrade and a lower $3.50 price target from Macquarie finally pushed the shares below $5. The stock now trades at a 10-month low.

It may get worse, though, before it gets better for Chesapeake Energy. Oil prices are falling, with no apparent end in sight. Natural gas — actually the majority of Chesapeake’s production — had recovered from early-year weakness, but has now given back most of its gains. It’s not difficult to imagine more analysts — and Imore investors — turning bearish on CHK stock.

That creates a buying opportunity, for some investors, anyway. CHK stock requires both a tolerance for risk and a belief that higher crude oil and natural gas prices are on the way.

After all, the stock’s technicals look awful, particularly with CHK breaking support at $5. Energy stocks as a group are badly underperforming a bull market. And the sentiment toward Chesapeake Energy seems as bad as it’s been since early 2016, when the company looked to be at significant risk of bankruptcy.

But that’s good news for aggressive, contrarian investors bullish on energy. For them, nothing at the moment beats CHK stock.

The Decline in CHK Stock Does Make Sense…

It might not seem like it — but it could be worse for CHK stock. After all, Chesapeake Energy is highly leveraged, which magnifies the impact of lower oil prices on its earnings.

That’s the primary reason why CHK stock has so significantly underperformed other energy stocks. CHK stock has declined 34% this year. Majors like Exxon Mobil Corporation (NYSE:XOM) and Chevron Corporation (NYSE:CVX) are down about 10% over the same period. The Energy Select Sector SPDR (ETF) (NYSEARCA:XLE) is down 14% — actually better than the 18% YTD decline in WTI spot prices.

But for CHK, a 34% drop off the back of a 18% decline in crude and a ~15% descrease in natgas isn’t surprising. Again, it could be worse.

That’s the risk-reward of CHK stock. Unlike Exxon Mobil, which has hedged out much of the impact of energy prices with its downstream operations, Chesapeake Energy is doubly leveraged to oil prices. Higher prices are almost free money, since production costs increase only fractionally as prices rise (save for the cost of hedging that production). Add to that the leverage on the balance sheet: Chesapeake Energy still has over $9 billion in debt.

All told, it’s no surprise that CHK stock is falling faster than oil, and faster than other energy stocks. That’s why Macquarie downgraded CHK stock, and likely why the market reacted so strongly.

…But It Sets Up A Rebound

The converse is equally true, however. Should crude rebound, Chesapeake will be an outperformer.

Indeed, at the moment, CHK stock is one of, if not the, best energy stocks to play a rebound. The same leverage driving Chesapeake under $5 will become a springboard if crude and natural gas prices rebound.

That’s a big if, to be sure. OPEC actions don’t seem to have helped. Major shale players like EOG Resources Inc (NYSE:EOG) and Pioneer Natural Resources (NYSE:PXD) are ramping up crude production even with lower prices. EOG increased production 18% in its first quarter. Pioneer wants to quadruple its output by 2026. Even with its natural gas production, CHK stock generally has tracked crude. And if crude prices don’t recover, neither will Chesapeake Energy stock.

But — again — if oil rises, energy stocks will benefit, and Chesapeake looks like the most direct, and largest, winner in that scenario. A 10% increase in energy prices likely would push Chesapeake Energy back into the black in terms of free cash flow right now.

And with current investment driving production down the line, it would also increase out-year cash flow and the price of CHK stock.

Oil Bulls Need Apply

What Chesapeake can control, it has done well. The balance sheet has improved markedly. Some Chesapeake bonds sold for as little as 15 cents on the dollar in February 2016; most have recovered to par, or above. Costs have been cut, and the break-even price has come down markedly. Operationally, Chesapeake Energy is a substantially improved company from what it was just 18 months ago.

What CHK stock needs now — like most energy stocks — is at least a stabilization in oil and natural gas prices. That will stop the decline in Chesapeake Energy stock. And if those energy prices rise, CHK stock will rise, likely even faster.

As of this writing, Vince Martin has no positions in any securities mentioned.