Imperial Petroleum (NASDAQ:IMPP) Is Doing The Right Things To Multiply Its Share Price

There are a few key trends to look for if we want to identify the next multi-bagger. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. So on that note, Imperial Petroleum (NASDAQ:IMPP) looks quite promising in regards to its trends of return on capital.

What Is 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. To calculate this metric for Imperial Petroleum, this is the formula:

Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)

0.087 = US$30m ÷ (US$366m - US$24m) (Based on the trailing twelve months to December 2022).

Thus, Imperial Petroleum has an ROCE of 8.7%. In absolute terms, that's a low return and it also under-performs the Oil and Gas industry average of 21%.

View 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 want to delve into the historical earnings, revenue and cash flow of Imperial Petroleum, check out these free graphs here.

How Are Returns Trending?

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 8.7% which is a sight for sore eyes. In addition to that, Imperial Petroleum is employing 138% more capital than previously which is expected of a company that's trying to break into profitability. This can tell us that the company has plenty of reinvestment opportunities that are able to generate higher returns.

In Conclusion...

Long story short, we're delighted to see that Imperial Petroleum's reinvestment activities have paid off and the company is now profitable. And since the stock has dived 82% over the last year, there may be other factors affecting the company's prospects. In any case, we believe the economic trends of this company are positive and looking into the stock further could prove rewarding.

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.

While Imperial Petroleum may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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.