Yesterday saw the release of the H1 results for Woodbois (LSE:WBI). The share price fell by almost 5% on the day, but it’s still trading above 5p. Up 22% in the past year, there does still appear to be momentum behind the company. But does the latest information change my view of the Woodbois share price?
A small-cap with potential
When I previously wrote about the business, the focus was on the surge in the share price. This caused it to double over the period of just a few weeks in late April. At the time, I was sceptical about the future prospects for the rally given that it appeared to be fuelled by speculative investors.
As the firm has a low market capitalisation, it can make it more likely to experience high volatility. It only takes a relatively small amount of buying or selling activity to cause a disproportionate move.
Don’t get me wrong, Woodbois is a business that’s functioning well. I stayed away simply due to the fact buying at 8p after the share price had doubled seemed unwise. There was a high risk that speculative short-term traders would take profit and sell quickly, causing the price to plummet.
This did happen, but some resilience was also seen and that kept it from falling all the way back down to 4p.
Fresh results could give impetsus
The H1 results made for good reading, I felt. Veneer output jumped by 50%, with sawn timber also up 37% from the same period last year. This contributed to an increase in revenue of 38%, with the business noting the “best quarter and half-year for volume of product shipped since before the pandemic”.
As for the outlook, the firm commented that it’s still seeing robust demand despite inflationary pressures. Supply and shipment issues are still a risk for the rest of the year, but I’m impressed that even with this problem, volume of shipments is increasing.
The business also provided an update on the second veneer line that has been installed in the factory. This is expected to be operational this month, with the new line set to more than double existing capacity.
Finding value in the Woodbois share price
The share price actually fell following the results, although I put some of this down to the fact that the stock market was a sea of red in general. Yet the lack of a move higher could also indicate that good news had already been expected, with little upside potential.
If Woodbois shares hadn’t already surged earlier this year, I think I’d be interested in buying now. However, I’d still be buying at an elevated level, which makes me a little nervous.
Given the one-off large gain reported in 2021 results, the price-to-earnings ratio doesn’t help me in accurately assessing if the stock is undervalued. So I can’t use this financial metric to help me make a decision.
Based on the above reasons, I don’t have a high enough conviction to invest right now. I still think the share price will be driven more by speculative flow than fundamental results. This isn’t something I want to get involved with.
