Is Woodbois the best penny stock to buy today?

The Woodbois share price has doubled in a month. Roland Head asks should this sustainable timber business be his next penny stock purchase?

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The Woodbois (LSE: WBI) share price has doubled over the last month. But at just 7.5p, as I write, shares in this African timber specialist are still firmly in penny stock territory.

Recent trading news from this £167m business looks encouraging, to me. Revenue and production are both rising. Should I buy Woodbois shares for my portfolio? I’ve been taking a look at this fast-growing business to find out more.

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A sustainable winner?

Woodbois is aiming to bring high standards of sustainability to the African timber business. The company sells wholesale timber and veneer from sustainably managed forests in Gabon and Mozambique.

Alongside this, Woodbois also has a carbon offsetting team that’s working towards launching the group first carbon sequestration project. The company is working towards FSC certification and plans to be carbon neutral by 2035.

Demand for Woodbois’ timber and veneer seems healthy. Revenue rose 14% to $17.5m in 2021, and by 22% to $5.6m during the first quarter of 2022.

Production is also increasing. The company says sawmill production during the first quarter was 4,200 cubic metres – 24% above the 2021 average. Veneer production was also 13% above 2021 levels. This all seems quite promising.

Running out of cash?

Although Woodbois’ performance improved last year, the business burned through $8.4m of cash during the 12-month period. This left the company with net debt of $8.3m and just $0.9m of cash at the end of 2021.

I’m concerned Woodbois could run short of cash this year. Shipping problems are currently limiting the rate at which the company can ship finished goods to its customers. In turn, this is hindering the pace of production growth.

Chief financial officer Carnel Geddes arranged $4m of new lending in January to help tide things over. My sums suggest this might be enough, depending on how quickly shipping conditions return to normal.

However, I think there’s a real risk production growth could be lower than expected in 2022.

Woodbois shares: my decision

This looks like a potentially interesting business to me. The combination of sustainable timber and carbon offsetting means Woodbois is operating in two key ESG growth areas.

If the company can continue to expand its production and secure the shipping capacity it needs, then I think sales could rise strongly this year. Broker forecasts suggest revenue could rise by 55% to $27m this year. That’s expected to translate into an after-tax profit of $0.2m.

My concern is that Woodbois could need to raise more funds from shareholders to avoid a cash crunch. This could lead to more dilution, reducing future gains.

I’m also a little worried by the rapid departure of CEO Federico Tonetti after just five months. He was only appointed in November after agreeing a growth plan with the board.

I think Woodbois could have potential. But I don’t think it’s the best penny stock for me to buy today. I’m going to keep looking for new opportunities and will revisit Woodbois in a few months to check on progress.

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Roland Head has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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