Niska Gas Storage (NYSE: NKA) has been gasping for air of late. The stock has lost more than half its value since May, as natural gas prices have fallen and earnings have disappointed. But the bad news has created a tempting buying opportunity for some investors, and Niska now receives a solid four out of five stars from our CAPS community of 180,000 stock pickers.

As North America's largest storer of natural gas assets, the company makes its money from fees for storage on long-term and short-term contracts, as well as from using its holding units to trade gas on its own account. Let's take a look at why you may or may not want to keep your money where banks, utilities, and municipalities keep their gas.

Buy
Great opportunity: Niska's stock dip this year has not only made shares a lot cheaper, but has boosted its dividend yield to an eye-popping 14.8%. Operating like an MLP, the company pays out almost all profits in distributions to its unitholders. With the drop in price, the stock is now trading for 69% of its book value, and insider buying has picked up, even as the stock has continued falling.

Production boom: With the increasing production and consumption of natural gas, the value of storage facilities like Niska's should go up. The company owns three facilities, in Oklahoma, California, and Alberta, Canada, comprising a total of 204.5 billion cubic feet of storage space.

Niska's price-to-book ratio may not be as appealing as it seems. When you remove intangible assets, the ratio becomes 1.96. Also, the production boom is helping to drive natural gas prices down, and is therefore hurting the storage company's ability to profit on margins.

Sell
Negative growth: Niska's last two earnings reports have missed estimates and propelled the stock downward. Operating income in the most recent quarter (fiscal 2012, Q2) decreased 17.73%.Furthermore, the company revised its fiscal 2012 estimates downward to $46 million-$56 million cash available for distribution and net income of just $3 million-$13 million.

Dividend pressure: In its last quarterly report, Niska also announced it would suspend dividends for subordinated units, but said it expected no change to its $0.35 quarterly distribution to common unitholders. Though Niska did reaffirm its ability to pay the common distribution, the suspension to subordinated units raises doubts about continuing dividends. Even more worrying is that the company has posted negative free cash flow the last two quarters, and retained earnings have disappeared. The company has less than $27 million in cash, but almost $800 million in debt.

The recent numbers and the suspension of the subordinated dividend are of concern, but if Niska can turn things around this could be a great buying opportunity.

Hold
Commodity prices: Niska's woes seem to be largely a source of declining prices and low volatility in the natural gas market. According to its most recent quarterly report, the company's performance suffered because of a "significant reduction in natural gas price volatility and a narrowing of the difference between winter and summer prices in the natural gas futures market." Niska profits off the ability to store gas in the summer, when it's cheaper, and sell it in the winter, when it's in higher demand.

The storage provider isn't the only natural gas company that's had a rough year, though.

Niska Gas Storage Partners Total Return Price Chart

Niska Gas Storage Partners Total Return Price Chart by YCharts

Natural gas prices have declined by about 40% since May, and as you can see from the chart, that has hurt not only Niska, but also Energy Transfer Partners (NYSE: ETP) and Inergy (NYSE: NRGY). All three also sport hefty dividend yields of 7.9% or more, but it's important to remember that these yields are boosted by declining stock prices, meaning the respective companies may not be able to maintain them. It's no surprise, either, that as the company with the sharpest decline, Niska now pays the highest yield.

My call
Hold. I'm leaning toward a sell, but first I'd like to wait and see what the next earnings report reveals. The natural gas business tends to pick up in the winter heating months, so a solid quarter could boost its shaky financials. If not, I'm cutting my losses here. A 14% yield is hard to pass up, but if the stock keeps dropping like it has, you'll lose money in the long run, and if Niska cuts its dividend, that'll only hammer the stock even harder.

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