Yahoo Finance Imperial Petroleum (NASDAQ:IMPP) Is Doing The Right Things To Multiply Its Share Price
If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. With that in mind, we've noticed some promising trends at Imperial Petroleum (NASDAQ:IMPP) so let's look a bit deeper.
Understanding Return On Capital Employed (ROCE)
For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. Analysts use this formula to calculate it for Imperial Petroleum:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.18 = US$65m ÷ (US$400m - US$47m) (Based on the trailing twelve months to March 2023).
Therefore, Imperial Petroleum has an ROCE of 18%. In absolute terms, that's a pretty normal return, and it's somewhat close to the Oil and Gas industry average of 23%.
Check out our latest analysis for Imperial Petroleum
Historical performance is a great place to start when researching a stock so above you can see the gauge for Imperial Petroleum's ROCE against it's prior returns. If you'd like to look at how Imperial Petroleum has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.
What Can We Tell From Imperial Petroleum's ROCE Trend?
Imperial Petroleum has recently broken into profitability so their prior investments seem to be paying off. The company was generating losses three years ago, but now it's earning 18% which is a sight for sore eyes. In addition to that, Imperial Petroleum is employing 150% more capital than previously which is expected of a company that's trying to break into profitability. We like this trend, because it tells us the company has profitable reinvestment opportunities available to it, and if it continues going forward that can lead to a multi-bagger performance.
For the record though, there was a noticeable increase in the company's current liabilities over the period, so we would attribute some of the ROCE growth to that. Effectively this means that suppliers or short-term creditors are now funding 12% of the business, which is more than it was three years ago. It's worth keeping an eye on this because as the percentage of current liabilities to total assets increases, some aspects of risk also increase.
The Key Takeaway
In summary, it's great to see that Imperial Petroleum has managed to break into profitability and is continuing to reinvest in its business. And since the stock has fallen 55% over the last year, there might be an opportunity here. So researching this company further and determining whether or not these trends will continue seems justified.
If you want to know some of the risks facing Imperial Petroleum we've found 4 warning signs (3 shouldn't be ignored!) that you should be aware of before investing here.
If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive returns on equity.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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