With Linn Energy (Nasdaq: LINE) entering the Bakken shale oil play, it seems that the company is full of potential. But how well will investors gain from the stock? A few important numbers offer some perspective, and those numbers are looking pretty good.

Here comes the science
Revenues haven't been steady since the company went public in 2006. The top line has recovered well since a 2009 slump, which was due to the drastic fall in oil prices during the recession. Fools should note that Linn has been unable to convert revenues into net income, but given the current state of the global energy market, I don't see any reason that Linn won't be able to maintain its momentum.

With acquisitions worth $3 billion in its kitty and total reserves of up to 2.6 trillion cubic feet equivalent (Tcfe) at the end of 2010, the company faces high expectations to deliver. Since this is a relatively new company, a large amount of debt need not be taken as a complete negative. But with long-term debt of $2.7 billion on its balance sheet, Linn must ramp up production to justify this figure.

There are a few things I find attractive about Linn. EBITDA, the margin of cash income, stands at an impressive 64%. Linn is comfortably meeting its interest expenses, with a healthy EBITDA-to-interest expense ratio of 2.3. And the stock has been outperforming the market consistently for most of the past year. I think investors will start seeing some of the company's revenue trickling down into net income.

As for valuation, the consensus estimate on the two-year forward P/E is 16.7, while competitors Anadarko Petroleum (NYSE: APC) and Forest Oil (NYSE: FST) stand at 20.3 and 14.9, respectively. That's not too bad. In fact, based on that number, the stock looks relatively undervalued next to its peers. However, Linn's three-year PEG ratio of 1.58 suggests that you're paying a bit of a premium for what analysts are expecting in terms of growth. And considering that Linn's return on equity stands at -4.4%, I'm not entirely sure the stock is appropriately priced for the time being, especially after taking a look at the company's operational history.

A Foolish bottom line
Despite the issues I'm seeing here, I do foresee positive changes in these figures, by virtue of Linn's oil reserves alone. Its free cash flow reserves stood at an impressive $197 million at the end of 2010. That's a vast improvement from $38 million the year before, and it reflects the company's improving financial position. With the current strong run in oil prices, this company looks pretty good in the long term.

Want to read more about Linn Energy? Add it to My Watchlist, which will find all of our Foolish analysis on this stock.

Fool contributor Isac Simon owns no shares of any of the companies mentioned in this article.

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