NEW YORK (TheStreet) -- In the last four months, Rex Energy (REXX) shares lost 30% from their April 24 peak at $21.50 to their Aug. 1 low at $13.39. The share price followed delays in several of Rex's Butler operated area wells. Investors pushed the stock price down fearing lower than expected production numbers. But after this recent sell-off, Rex Energy could deliver significant gains to shareholders as it continues to expand into the Appalachian and Illinois Basin.

Over the past five years Rex Energy has been expanding its number of wells in Illinois, Indiana, eastern Ohio and western Pennsylvania. The push reaped massive production gains. The growth translates into a 67% compound annual growth rate, or CAGR, in proven oil and gas reserves, increasing from 125.2 Bcfe in 2009 to 849.8 Bcfe in 2013.

Rex's total proven reserves as of June 30 were 1,057.8 Bcfe, contributing to a PV-10 of approximately $1.0 billion. Likewise, production accelerated from 17.2 MMcfe per day to 92.74 MMcfe/d in the same time frame, a 52% CAGR. Rex's ability to carefully reinvest earnings in order to stimulate production is one of its competitive advantages and is an important aspect to consider when evaluating the company's stock as an investment.

Rex Energy beat first quarter analysts' expectations of 14 cents a share reporting earnings of 45 cents per share. Second quarter EPS, though lower at 16 cents, was slightly above analyst estimates of 15 a share. Investors remain eager to see whether the company will stay on track to meet its full-year production guidance, which Rex recently revised up approximately 2.0 MMcfe/d, despite the Butler Operated well delays.

Rex Energy's fundamentals may dissuade investors. For one, the company has a debt-to-equity ratio of 1.3, vs. an industry average of 0.5. This is largely due to management's decision to source cash from the high-yield market last year, adding $250 million to its balance sheet. Also, negative free cash flow of $50 million in each of the previous two quarters, while not uncommon for a capital intensive industry does not bode well for this stock.

Furthermore, a bad stock in an outperforming industry is oftentimes a better investment than a good stock in an underperforming one. Rex Energy's exposure to natural gas prices is a substantial risk that should weigh heavy on investors' minds. Although Rex was a beneficiary of a first quarter gas spike, second quarter prices have been falling to lower lows ever since. If downward trends continue, Rex, and all other natural gas companies for that matter, will be looking at much lower margins. For Rex, this spells particular trouble since margins are already tightening in relation to the industry. Even with its tremendous growth, trailing 12-month operating and net margin are 14.8 and 1.2, compared to industry averages of 18.8 and 8.9, respectively.

Billionaire Seth Klarman once said that the three essential characteristics of the value investor are patience, discipline, and risk-aversion. In the case of Rex Energy, patience is the most applicable and crucial trait. Although Rex's considerable growth is noteworthy, its value does not yet warrant its price tag. With natural gas prices that may well continue to decline, it's likely that Rex will be affected by adverse industry headwinds. For the value investor seeking a bargain on a great company, Rex is not quite suitable at a price around $15.10. Although the stock has fallen significantly, patient investors should keep their eyes on Rex Energy until the price of natural gas and the stock itself meet low-bound support. Until then, I'm hoping for another cold winter.

At the time of publication, the author held no positions in any of the stocks mentioned, although positions may change at any time.

This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.

Note: This article contains one or more stocks with a market cap between $350 million and $2 billion. Such small-cap stocks tend to be volatile.

TheStreet Ratings team rates REX ENERGY CORP as a Hold with a ratings score of C. TheStreet Ratings Team has this to say about their recommendation:

"We rate REX ENERGY CORP (REXX) a HOLD. The primary factors that have impacted our rating are mixed ? some indicating strength, some showing weaknesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks. The company's strengths can be seen in multiple areas, such as its robust revenue growth, good cash flow from operations and expanding profit margins. However, as a counter to these strengths, we also find weaknesses including a generally disappointing performance in the stock itself, deteriorating net income and generally higher debt management risk."

You can view the full analysis from the report here: REXX Ratings Report