A couple of weeks back, I analyzed Anadarko Petroleum's (NYSE: APC) first-quarter results, which were heavily affected by derivative losses.

Yet when it comes to energy companies, what really matters to Fools is whether the company is able to generate profits in the long run thanks to fundamentally strong operations. Closely related to that would be whether the returns are worth the price we pay for the stock. That's what I'm looking for. And I think I have an answer with Anadarko.

Income matters
Texas-based Anadarko Petroleum seems to be faring weakly on the operating income front when we analyze its performance over a five-year period. Thanks mainly to depreciation, amortization and other expenses, operating (or EBIT) margin has progressively declined to 15% this year from 58% in 2006. While the compounded annual growth rate over the last five years for operating expenses was 29%, the corresponding value for gross profit was a paltry 9%. This disproportion naturally ate into earnings.

This discrepancy affected the net margin and free cash flow of the company, with the latter plunging to an all-time low of a negative $601 million recently. Return on equity, too, has dropped to 1.5% -- the lowest in five years.

I really do not expect to see a turnaround any time soon, especially since Anadarko still has legal tangles to sort out with BP (NYSE: BP) over the Macondo well blowout, which could be very substantive. Any settlement would see cash fly out the window quite quickly.

How cheap is the stock?
But every stock, even the worst ones, has a price at which I begin to get interested. Is Anadarko at that price? Anadarko's forward P/E doesn't appear cheap; at 24.5, it's certainly more expensive than ExxonMobil (NYSE: XOM) at 9.4 and ConocoPhillips (NYSE: COP) at 8.9.

The total enterprise value to free cash flow (TEV/FCF) shows excess cash generated that can either be ploughed back into the business or distributed to shareholders, compared against the total value of the company. The lower the value, the cheaper the stock is. TEV/UFCF for Anadarko stands at 36.9 times. For ExxonMobil, the ratio stands at 26.6 times, while for ConocoPhillips it stands at 11.1 times. On this basis, Anadarko sure looks expensive. Given its operational issues, I'm not exactly attracted to the business.

Foolish bottom line
The stock looks overvalued, and the future is definitely uncertain for this company from an operational standpoint. My instinct is to steer clear of this stock until some of these issues get straightened out.