Woodbois (LSE:WBI) is a producer of sustainable hardwood, based in Gabon in West Africa. The recent volatility of the share price, among other things, has led to heightened interest in the company. With this business firmly planted in penny stock territory, I want to know if I should use a spare £500 to load up on Woodbois shares. Could a speculative buy add significant value to my long-term portfolio? Let’s take a closer look.
Recent price movements
For the past couple of months, the Woodbois share price has been explosive to say the least. On April 1, shares were trading at 3.75p.
Fast-forward to May 5, they’d reached the dazzling heights of an intraday high of 9.39p. In the space of just over one month, the shares surged over 250%.
If I’d used my £500 to buy shares between these two dates, it could have turned into £1,750. But I can dream on. They’re currently trading at 6.8p, which is still nearly a 100% increase since April 1.
Much of this excitement was down to a paid article, published at the beginning of May. It claimed that the share price could rise by 1,000%.
My rule is that when something sounds too good to be true, it usually is. Nevertheless, the share price doesn’t lie, and it did rise by 250%. Was this rise warranted based on the underlying business? Let’s see.
The global wood market and financial results
The global wood market, like most other commodity markets, has become much tighter since the pandemic and the Russian invasion of Ukraine.
There are supply concerns as Russian wood production declines and demand rises because China is increasing imports as it emerges from strict lockdowns.
Forest fires in Australia and North America have also heightened supply worries in the past few years. These trends could well increase the value of the timber that Woodbois is producing.
Furthermore, the company’s gross profit increased by 186% to $3.5m in 2021. During that year, the firm also acquired a further 71,000 hectares of forest in Gabon.
Sawmill capacity grew by an additional 30,000 cubic metres per year in 2021. The business has also recently partnered with World Forest ID in a bid to boost the sustainability of its operations.
Not everything is rosy, however. There was negative cash flow in 2021 and debt is growing as this year progresses. As the world recovers from the pandemic, supply chain issues and shipping problems may begin eating into future balance sheets.
Overall, the underlying business performance doesn’t seem to me to warrant the massive share price movement and any investment I’d make in this firm comes with great risks. It is, after all, trading for pennies. Nevertheless, recent results and the global wood market make me think that a relatively small purchase of £500 could be a reasonable speculative buy for my portfolio. I’ll be buying shares soon.
