Imperial Petroleum Inc.'s (NASDAQ:IMPP) Shares Not Telling The Full Story

You may think that with a price-to-sales (or "P/S") ratio of 0.3x Imperial Petroleum Inc. (NASDAQ:IMPP) is a stock worth checking out, seeing as almost half of all the Oil and Gas companies in the United States have P/S ratios greater than 1.6x and even P/S higher than 4x aren't out of the ordinary. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's limited.

Check out our latest analysis for Imperial Petroleum

What Does Imperial Petroleum's Recent Performance Look Like?

Imperial Petroleum certainly has been doing a great job lately as it's been growing its revenue at a really rapid pace. Perhaps the market is expecting future revenue performance to dwindle, which has kept the P/S suppressed. Those who are bullish on Imperial Petroleum will be hoping that this isn't the case, so that they can pick up the stock at a lower valuation.

Although there are no analyst estimates available for Imperial Petroleum, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

How Is Imperial Petroleum's Revenue Growth Trending?

The only time you'd be truly comfortable seeing a P/S as low as Imperial Petroleum's is when the company's growth is on track to lag the industry.

Taking a look back first, we see that the company grew revenue by an impressive 204% last year. This great performance means it was also able to deliver immense revenue growth over the last three years. Accordingly, shareholders would have been over the moon with those medium-term rates of revenue growth.

This is in contrast to the rest of the industry, which is expected to grow by 4.3% over the next year, materially lower than the company's recent medium-term annualised growth rates.

With this in mind, we find it intriguing that Imperial Petroleum's P/S isn't as high compared to that of its industry peers. It looks like most investors are not convinced the company can maintain its recent growth rates.

The Final Word

We'd say the price-to-sales ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

We're very surprised to see Imperial Petroleum currently trading on a much lower than expected P/S since its recent three-year growth is higher than the wider industry forecast. When we see strong revenue with faster-than-industry growth, we assume there are some significant underlying risks to the company's ability to make money which is applying downwards pressure on the P/S ratio. At least price risks look to be very low if recent medium-term revenue trends continue, but investors seem to think future revenue could see a lot of volatility.

Before you settle on your opinion, we've discovered 4 warning signs for Imperial Petroleum (2 can't be ignored!) that you should be aware of.

If you're unsure about the strength of Imperial Petroleum's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.