How high could the Woodbois share price go?

Jon Smith admits that there seems to be more room to run for the Woodbois share price, but explains why it’s not for him.

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At the end of last week, I wrote about the rise and fall of Woodbois (LSE:WBI) shares over the past month. After spiking 100% in a month to 9p, the Woodbois share price had retraced almost all of the move as we started this week. Yet after a couple of strong trading days, it now sits at 6p. Up 8% in a year, what’s the next target for this penny stock?

Reasons for the high interest

Before I discuss potential levels, I think it’s important to understand why the Woodbois share price spiked in the first place. From my point of view, there are a few reasons.

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Good Q1 results certainly helped to provide optimism for shareholders, both existing and new. Further, a paid ad claiming 1,000% returns without too much analysis also poured some fuel onto the fire.

Yet the largest reason for the move from my point of view was speculative buying. Speculators could push up the share price so much due to fact that its market capitalisation is very low. In fact, even at 6p, the market cap is only £112m.

What this means is that it doesn’t take a large amount of buying or selling in monetary terms to really cause a shift in the price. Whereas buying a couple of million worth of Apple stock would be a drop in the ocean, buying activity of that size would be noticeable for Woodbois based on the market cap. So once the move higher started, speculative buyers jumping in helped to cause a much larger move higher than normal.

Room to run for the share price

The second spurt seen this week doesn’t seem to be based on any fresh news or information. A partnership announced on Monday with World Forest ID is good, but won’t impact the financial results. Therefore, I think this move is again driven by speculative buyers it think this could move higher in the short term.

In terms of just how high it could go, the first stop would be the level of 9.3p reached earlier in May. Beyond that and there’s blue sky up to 20p, a price that was last hit over five years ago.

In some ways, the fact that the Woodbois share price has been much higher than at present is reassuring. A move upwards isn’t uncharted territory for the stock, which is the case for some other penny stocks. However, at the same time the situation doesn’t fill me with confidence, as I don’t feel any rise is based on strong fundamental factors.

If the company was smashing the ball out of the court with its earnings, expansion and partnerships, I could get on board this sharp rally.

I’ll always stay away from stocks that I think could see their bubble bursting quickly. This isn’t to say that I wouldn’t make money if I bought. But I just don’t feel comfortable buying Woodbois shares based on pure speculation. So the Woodbois share price has room to track a lot higher. But I won’t be investing as I don’t think it’s a sustainable growth stock.

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Jon Smith has no position in any share mentioned. The Motley Fool UK has recommended Apple. 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.

Should you invest the value of your investment may rise or fall and your Capital is at Risk. Before investing your individual circumstances should be considered, so you should consider taking independent financial advice.

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