What’s going on with Imperial Petroleum (NASDAQ:IMPP) today? Right now, shares of the oil company are up around 18%. Imperial operates as a seaborne transportation provider for oil producers and refineries.
On top of today’s climb, shares of IMPP stock have risen more than 20o% since the start of the Russia-Ukraine conflict. However, they have also fallen more than 50% in the past five trading days.
So, why exactly is IMPP stock up today? Here’s what investors should know about the oil company moving forward.
Why Is IMPP Stock Up Today?
Currently, it appears that IMPP stock is rising in correlation with the price of crude oil. Today, the price for a barrel of crude oil has risen by over 8% to around $103. Imperial Petroleum shares also seem to be gaining due to the recent conflict between Russia and Ukraine.
On March 8, President Joe Biden announced that the U.S. would be banning Russian oil imports. Russian President Vladimir Putin also recently signed a decree banning Russian oil exports until the end of 2022. As a result, oil companies are now having to accommodate higher demand.
That’s not all, though. In addition, Fintel reports that Imperial is currently susceptible to a short squeeze. Right now, IMPP stock ranks in third place on the platform’s Short Squeeze Screener and Leaderboard. It has a high short interest (SI) as a percentage of float of 44.07%. What’s more, its SI has risen by an astonishing 1,537% over the past month. As such, the borrow fee rate sits at a high 113%.
What Is the Present Value of Imperial Petroleum?
So, how should investors value IMPP moving forward? Well, Simply Wall St recently released a report seeking to value Imperial Petroleum using a discounted cash flow (DCF) model. To do this, the site extracted past free cash flow (FCF) growth in order to estimate future FCF growth. Next, they calculated terminal value (TV), which assumes that a company will grow at a “set growth rate” beyond the set forecasting period. In this case, Simply Wall St set the terminal growth rate at 1.9%, in line with the “5-year average of the 10-year government bond yield.” All told, Simply Wall St assigned Imperial with a discount rate (or cost of equity) of 11%.
Assuming a TV growth rate of 1.9%, the terminal value of Imperial is $24 million. Meanwhile, according to Simply Wall St, the present value of discounted cash flows 10 years out is $33 million. Adding these together yields a market capitalization of $57 million. Dividing this market cap by the number of shares outstanding gives us a fair value price of $2.67 for IMPP stock.
That said, this is just an estimate. It can change dramatically if any inputs like FCF or the discount rate are changed. As Simply Wall St notes, “Valuations are imprecise instruments […] rather like a telescope […] move a few degrees and end up in a different galaxy.”
On the date of publication, Eddie Pan did not hold (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.
