Small-cap Swift Energy (NYSE: SFY) has showed a lot of promise in the past. With a balanced approach to growth, this company looks to be in better health than most small-cap exploration and production companies. However, is the stock good enough for the long-term investor?

The crux of the matter
To check that, I looked into the fundamentals -- in other words, the company's core operations. To start, total production has remained pretty much flat over the last five years with a slight drop in 2010. Operational cash flows did register an increase in the last 12 months, though, thanks to higher price realizations for oil. But that does not impress me. Market conditions cannot really dictate a company's ability to succeed over a prolonged period.  

Total reserves, however, improved by 18% in 2010 over the previous year. Out of this, natural gas reserves grew by 45%. This is actually quite promising. Natural gas will definitely be the commodity to look out for in the next decade. But things need not be very smooth for Swift. Out of a total of 423 billion cubic feet, or Bcf, of proved natural gas reserves, only 45% are developed. Considering the lousy market for this commodity today, the company will have to do some good work with its oil reserves to maintain stable cash flows.

Future plans
Capital expenditures for 2011 are expected to be around $450 million, primarily targeted for development of the company's South Texas assets, including the Eagle Ford shale play. With this, Swift expects a 25% to 30% increase in production over 2010 levels. This sounds promising. However, it remains to be seen whether the company will be able to successfully implement its plans.

How is the stock valued?
This is how Swift stacks up when compared to its peers:

Company

P/E

(TTM)

TEV/EBITDA

(TTM)

Return on Equity

Return on Assets

Swift Energy 30.1 8.0 6.6% 4.5%

Kodiak Oil & Gas

(AMEX: KOG)

NM 181.9 (5.8%) (2.8%)

Brigham Exploration

(Nasdaq: BEXP)

90.2 30.1 10.0% 4.8%

GMX Resources

(NYSE: GMXR)

41.8 10.0 (68.0%) (15.0%)

ATP Oil & Gas

(Nasdaq: ATPG)

NM 12.6 (87.2%) (1.6%)

Source: Capital IQ, a Standard & Poor's company. TTM = trailing 12 months.

Swift's numbers look pretty impressive compared to other small caps in the same business. Its impressive ROE and ROA have caught my attention. These assets are definitely capable of generating solid returns.

Foolish bottom line
Swift has the potential to grow, provided things fall in place as expected by management. If you believe in the overall ability of this stock, it doesn't look too expensive to grab a few shares. What do you think about the long-term prospects? Post your comments below.

Fool contributor Isac Simon does not own shares of any of the companies mentioned in this article. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.