Can I double my money with Woodbois shares?

The Woodbois share price has already climbed more than 80% from its 52-week low. Could there be a further doubling on the horizon?

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

Happy young female stock-picker in a cafe

Image source: Getty Images

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Woodbois (LSE: WBI) shares spiked up last month before losing some of the gain, as the company’s fledgling carbon credit business prompted some excitement.

The price is up only a modest 9% over the past 12 months. But from a 52-week low in January, Woodbois has gained more than 80%. Could we be in for a further doubling?

Maybe I lack optimism. There is one punter out there touting a 1,000% gain. But there’s a lesson I take from that: ignore massive claims, especially when there’s no fundamental analysis to support them.

I must sound another caution. The carbon credit business might be behind today’s bullish sentiment. But the company is still working on gaining the required permits, and it’s going to be some time before that gets off the ground.

The hardwood business

In the meantime, I base my judgment on the sustainable hardwood business. You know, what Woodbois is actually doing today.

The profit reported for 2021 was dominated by one-off sums that were down to asset valuation changes. So we don’t have a handle on sustainable profit from operations yet, and no meaningful valuation metrics there.

What about sales? Comparing the company’s market cap with its 2021 turnover produces a price-to-sales (P/S) ratio of about eight. That’s high for a mature company, but I don’t think it’s too stretching for a firm like Woodbois whose production is not fully on stream yet.

A doubling in sales over the next few years, with the P/S remaining at today’s level, would imply a doubling of the Woodbois share price. Is a sales doubling feasible?

New concessions

The company acquired 71,000 hectares of new forestry concession in Gabon in 2021. No harvesting has taken place yet. And Woodbois is ramping up the capacity at its sawmill and veneer factory. So yes, I think there’s a decent prospect of sales growing substantially in the next few years.

But that might not necessarily translate to a share price doubling. I have one key concern, and that is dilution. Over the past few years, the number of shares in issue has been ramping up through a combination of new issues and bond conversions.

Issued Woodbois shares

At the beginning of 2020, there were approximately 465m Woodbois shares in issue. By the end of 2021, that number had soared to 2.5bn. That’s a fivefold dilution in two years.

Funding for all this expansion has to come from somewhere, and the company has yet to post positive cash flow.

Woodbois had cash of $2.6m at 31 March 2022. But 2021 had brought cash outflows of $8.4m, including operating cash flow and expenditure on facilities development.

A balance

So whether Woodbois shares can double in price will depend, it seems to me, on the balance of two things. One is increasing sales, and eventual profits and positive cash flow. The other is the potential drag of new shares being issued to generate fresh funding, with future profits being spread ever more thinly.

So yes, I do see a doubling possibility. But I also see significant risk. It’s a penny share I’d avoid, myself, just now.

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 assessed. Consider taking independent financial advice.

Alan Oscroft 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.

More on Investing Articles

Young female business analyst looking at a graph chart while working from home
Investing Articles

Why I think Rolls-Royce shares will pay a dividend in 2024

Stephen Wright thinks Rolls-Royce shares are about to pay a dividend again. But he isn’t convinced this is something investors…

Read more »

Investing Articles

1 of the best UK shares to consider buying in April

Higher gold prices and a falling share price have put this FTSE 250 stock on Stephen Wright's list of UK…

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

The market is wrong about this FTSE 250 stock. I’m buying it in April

Stephen Wright thinks investors should look past a 49% decline in earnings per share and consider investing in a FTSE…

Read more »

Black father and two young daughters dancing at home
Investing Articles

1 FTSE 250 stock I own, and 1 I’d love to buy

Our writer explains why she’s eyeing up this FTSE 250 growth phenomenon, and may buy more shares in this property…

Read more »

View of Tower Bridge in Autumn
Investing Articles

The FTSE 100 is closing in on 8,000 points! Here’s what I’m buying before it’s too late!

As the FTSE 100 keeps gaining momentum, this Fool is on the lookout for bargains. Here's one stock he'd willingly…

Read more »

Investing Articles

3 ideas to help investors aim for a million-pound Stocks & Shares ISA

The UK has a growing number of Stocks and Shares ISA millionaires, and this plan may be one of the…

Read more »

Illustration of flames over a black background
Investing Articles

2 red-hot UK growth stocks to consider buying in April

These two growth stocks are performing well, but can they continue to deliver for investors through 2024 and beyond?

Read more »

Charticle

Is JD Sports Fashion one of the FTSE 100’s best value stocks? Here’s what the charts say!

The JD Sports Fashion share price remains a wild ride during the first quarter. Could it be one of the…

Read more »