About a month back, I analyzed Noble Energy's (NYSE: NBL) first-quarter results, which were dragged down by derivative losses. Considering these losses, what makes this stock appealing?

What really matters for Fools when it comes to energy stocks is whether the company is able to generate profits in the long run based on sound operational strategy. Closely related to that would be whether the returns that the company is able to generate are worth the price we pay for the stock.

Income matters
Houston-based Noble seems to be falling short on operating income when we analyze its performance over a five-year period. Thanks mainly to depreciation, amortization, and impairment costs, operating (or EBIT) margin has gradually declined to 19% from 49% in 2006.

This, in turn, has affected the net margin and free cash flow of the company, which just hit an all-time low of -$585 million. Return on assets were also dragged down to 2.7% -- its lowest mark in five years. None of this is inspiring for the Foolish investor.

How cheap is the stock?
Still, I'm intrigued whether these items had any impact on the company's asset value -- or the company's ability to eventually make money. Well, my answer is no. Noble has actually increased its tangible asset base over the years. After adjusting for depreciation, total value of tangible assets has risen by 59% since 2006. So how are these assets valued compared to its stock price?

The price-to-tangible book value of the stock stands at 2.5, compared to peers such as Anadarko Petroleum (NYSE: APC) at 2.4 and Abraxas Petroleum (NYSE: AXAS) at 9.4. Noble's assets are of high quality, capable of generating solid earnings, though Abraxas' stock looks overvalued at the moment. Now, I'm starting to get interested.

Even deeper
Depreciation and amortization, which are notional, noncash expenses, can hide a company's real potential in terms of growth, which is why I'd want to check the company's total enterprise value to its core earnings from operations without discounting D&A as well.

On March 31, Noble's TEV/EBITDA stood at 7.7 times. For Anadarko, the value stood at 8.0 times, while for Abraxas it stood at 19.6 times. EOG Resources (NYSE: EOG) stood at 16.1 times. Noble definitely seems to be cheap as compared to peers with comparable market caps.

In other words, what I think I'm seeing here when I look at Noble is a company that is undervalued relative to the quality of its existing assets and undervalued compared to it ability to generate cash. If you believe in the greater prospects of the industry, you might want to check out Noble.

Foolish bottom line
There are certainly issues that management needs to look into. But as I had mentioned in my previous article, this looks like a stock for the long run as the company has potential for solid growth.