As the West Texas Intermediate (WTI) oil price surges, some folks prefer to trade futures contracts. That’s fine, but stock traders might consider Greek oil transportation company Imperial Petroleum (NASDAQ:IMPP) as the buying pressure with IMPP stock has been off the charts lately.
Besides, oil futures contract trading isn’t appropriate, or even available, for everyone. On the other hand, shares of Imperial Petroleum are relatively cheap and highly liquid, so it’s easy to get in and out of the trade.
In a moment, we’ll see just how wild IMPP stock’s price action has been lately. With that in mind, it’s not advisable to pour your entire account into this one stock.
However, a small position in Imperial Petroleum shares could be appropriate as long as you’re aware of the risks involved. If you can handle the volatility, then there might actually be multi-bagger potential here.
IMPP Stock: The Beginning
Going back to where it all started, InvestorPlace contributor Eddie Pan provided the nitty-gritty on Imperial Petroleum’s debut on the Nasdaq exchange.
On Dec. 6, 2021, IMPP stock started trading as Imperial Petroleum was spun off from StealthGas (NASDAQ:GASS). After experiencing stock halts throughout that first day of trading, shares of Imperial Petroleum closed up 1,700%.
As Pan pointed out, Imperial Petroleum will remain a wholly owned subsidiary of StealthGas. Both of these companies are Greek ship-owning businesses, but StealthGas’ fleet of 45 ships dwarfs Imperial’s fleet of four.
IMPP stock peaked early at $7.18, and then embarked on a journey to the downside. On Feb. 18, the stock touched a low point of 48 cents.
Clearly, Wall Street had turned its back on the StealthGas spin-off and this was a dead trade. Right?
Little Fleet, Big Buzz
Not so fast — the story of Imperial Petroleum is far from over. Indeed, soon the buyers would regain control of IMPP stock and the bears would go into hibernation.
Just to provide some more background on the company, Imperial Petroleum owns three medium-range product tankers and one Aframax oil tanker. These four tankers have a total capacity of 255,804 deadweight tons (dwt).
While IMPP stock is definitely buzz-worthy, let’s not romanticize Imperial Petroleum. This is a tiny company with a website that looks like it was designed by middle-school students in 1997.
If your eyes can tolerate the white font on the web page’s light background, feel free to learn more about Imperial’s fleet here. There’s really nothing special about these four tankers, though they do have cool names like “Magic Wand” and “Clean Thrasher.”
Can We Defend the Trend?
The common pattern is that when the oil price goes up, the Imperial Petroleum share price jumps. This makes sense, but the effect is magnified because we’re dealing with a low-priced stock here.
For instance, on March 9, 2022, the West Texas Intermediate (WTI) oil price reached $118 per barrel. That same day, IMPP stock was trading above $4, representing a gain of more than 100% in two weeks’ time.
This price action may be difficult to defend, as Imperial Petroleum isn’t a profitable company. During Imperial’s most recently reported-on quarter, the company incurred a net earnings loss of $0.9 million.
Also during that quarter, by the company’s own admission, Imperial Petroleum “incurred senior secured bank debt of $28 million.”
Still, those figures are from the past and as the oil price climbs, Imperial Petroleum could be better positioned to pay its debt and possibly even turn a profit.
The Bottom Line on IMPP Stock
The astounding rally in IMPP stock might seem irrational, or at least overdone.
Yet, let’s not forget that low-priced stocks can magnify the gains of commodity prices. Plus, stock traders can stay in an irrational hype mode for a surprisingly long time.
At the end of the day, it’s fine to give IMPP stock a try and see where it goes. Just be sure to keep your position size small, and monitor the oil price as well as Imperial Petroleum’s upcoming financial results.
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On the date of publication, David Moadel did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.