Woodbois shares: should I buy the dip?

Woodbois Ltd (LON: WBI) shares have backtracked from their recent high. Partial to the odd penny stock, Paul Summers considers whether he should get involved.

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There’s been quite a lot of discussion about Woodbois (LSE: WBI) shares at Fool UK recently. Today, I’m asking whether I should take advantage of the recent dip in the stock’s price.

What’s going on with Woodbois shares?

Let’s start with a quick recap. In its own words, Woodbois is an “African focused forestry, timber trading, reforestation and voluntary carbon credit company“. Aside from some positive noises on recent trading, I think it’s this last part of the business that’s getting some investors excited. As evidence of this, Woodbois shares more than doubled in value between April and May.

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But let’s not get carried away. Woodbois is still a penny stock. That’s usually a recipe for volatility. And, so far, that’s exactly what holders are getting. Shares are down a little over 25% from their recent high.

Despite this, anyone holding Woodbois since the beginning of 2022 would still be sitting on a capital gain of 33%. That’s not life-changing. However, it does demonstrate how buying the right minnow at the right time can quickly boost my wealth.

Promising outlook

There are a couple of things I like about the company. First, the top line is going in the right direction. Back in April, Woodbois revealed a 22% rise in Q1 revenue to $5.6m compared to the same period in 2021. It also said it was “on track to deliver strong revenue and profit growth” for the year.

Second, Woodbois easily ticks the ESG box. Here is a company that appears committed to not only trading responsibly-sourced products but also to restoring tree cover in an effort to protect the climate and biodiversity. That should also succeed in attracting customers — and investors — to the business.

Pop… and drop?

For balance, it’s important to consider some less attractive aspects of the investment case.

CEO Paul Dolan is confident of achieving “strong quarter on quarter growth” for the rest of the year. However, this is dependent on shipping routes not being disrupted and containers being available.

Should this not be the case, Woodbois shares could tumble. It’s not exactly rolling in cash to be able to deal with unforeseen setbacks either. On top of this, Gabon — where the company operates a sawmill site and veneer factory — doesn’t strike me as the most politically stable of countries.

I think it’s also worth paying attention to the free float, the proportion of Woodbois shares that are currently trading on the market. This is currently less than 50%, meaning that a small number of buys can send the share price rocketing.

Unfortunately, the opposite is equally possible, especially if current holders get spooked by the wider market malaise. A rush of plain old profit-taking by traders could have the same effect.

On the watchlist

I’m partial to the odd penny stock. Indeed, I’ve had money tied up in driver monitoring tech firm Seeing Machines and nickel miner Horizonte Minerals for a few years now. Both have served me well, so far.

As things stand however, Woodbois still seems to me a (very) speculative way of playing the ESG theme and one that could easily send me underwater if there’s another ‘dash to cash’, or trading encounters fresh headwinds.

I’m content to watch from the sidelines for now.

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Paul Summers owns shares in Horizonte Minerals and Seeing Machines. 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.

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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