Cabot Oil and Gas (NYSE: COG) has been crippled by low natural gas prices. But, all of that is in the past, especially with a looming natural gas bull market staring at us. When all is said and done, how good does this stock look to investors in the long run? From an investment point of view, it's necessary not only to find a functional business with solid potential, but also to pay the right price for it.

The performance
Lower natural gas prices over the last 12 months have negatively affected Cabot, though the top line has held fast thanks to higher production volumes. Unfortunately, Cabot's EBITDA has been progressively slipping for the last couple of years, dropping to $510 million from $602 million. Higher operating costs have certainly been a part of that evolution.

EBIT margins have suffered thanks to higher depreciation and impairment costs. At 16.5%, the current EBIT margin is the lowest it’s been in five years. Return on assets, as a ratio, has progressively fallen since 2006, from a healthy 14.1% to 2.2%. Clearly, the addition of new assets has not resulted in a proportional rise in earnings.

However, from a balance sheet perspective, debt-to-equity stands at a respectable 56% when compared to peers like Petrohawk Energy (NYSE: HK) at 84%, Range Resources (NYSE: RRC) at 99%, and Southwestern Energy (NYSE: SWN) at 39.1%.

How cheap is Cabot?
This is how Cabot stacks up against its peers with respect to its future earnings potential:

Company

Forward P/E

TEV/Forward EBITDA

Forward PEG

P/B

Cabot Oil & Gas

31.2

7.9

3.9

2.9
Range Resources

36.0

10.4

1.6

4.1
Southwestern Energy

18.5

7.6

0.9

5.0
Stone Energy (NYSE: SGY)

9.6

3.5

NM

3.7
Petrohawk Energy

15.2

5.6

0.6

2.1

Source: Capital IQ, a Standard & Poor's company.

Cabot is certainly on the expensive side. Until I see something better from the company from an operational standpoint, I suspect the company's lousy performance to continue for the next couple of years. While lower natural gas prices may continue into the near future, the company does not seem well equipped to tackle the challenge.

Foolish bottom line
Management must turn itself around and rein in costs to fully take advantage of improved market conditions in the future. With high-quality assets under its belt, this should be an easier task. Its wells in Susquehanna County on the Marcellus shale plays are each capable of producing 30 million cubic feet of gas per day -- an amount that is enough to supply nearly 1,000 homes for a year. Still, as of now, I will avoid Cabot as its recent performance trends look worrying.