Despite posting an impressive set of Q3 results, Woodbois (LSE:WBI) shares fell 17% last week. To some extent, I’m not surprised. This stock first came on my radar earlier this year because it doubled in price in the space of a month. Erratic jumps and falls seem to be par for the course. With the stock down 29% over the past year, I think there are a few important points to note about the Woodbois share price.
Q3 results maybe weren’t that great
On Monday, we got the Q3 trading update that was flush with proud statements from the management team. It spoke of both a record quarter for revenue and also a record nine months (year-to-date) of revenue. Production levels for sawmill and veneer were also up significantly on the quarterly average from last year. For example, sawmill production was up 78%.
These are all points that should help to drive the business forward. As a growth stock, the company wants to capitalise on this top-line growth as much as possible, with the aim of it filtering down to the bottom-line (net profit).
However, that brings me to the first reason why I think the Woodbois share price reacted negatively last week. The business didn’t report the size of the profit/loss for the period. This leads me to conclude that it wasn’t a good quarter when it came to the loss after tax. In the half-year results, the loss for the period was $533k. In H1 2021, the loss was $934k. So, unless something magical happened in Q3, I’m guessing it lost money again.
Further, I think some investors were looking for more evidence of how total borrowings might be reduced. The figure is $12.3m, virtually unchanged from $12.4m last quarter. It’s quite high, especially when total revenue year to date is $17.1m and the cash balance is only $1.4m. When I consider it in relation to those other numbers, I’d like to see some active strategy for bringing it down.
Erratic moves in the share price
Yet even with fundamental concerns about the report, I don’t think a 17% fall in a week is completely justified. But then again, there weren’t that many company-specific catalysts that led to the share price doubling back in the spring.
I think some of this move in October relates to something I flagged up earlier this year. The stock is small, with a market capitalisation of £66m. This means that it only takes a relatively small amount of buying or selling activity in order to move the price.
When the share price was flying, I put it down to speculative investors who were buying in the hope of making a quick profit. For those who didn’t sell as the price came crashing back down, the results last week (or the fact that we’re coming to the end of the year) might have triggered some to throw in the towel and sell.
The volume associated with selling could easily have magnified the share price fall. Given the fact that I think this small-cap stock will continue to be volatile, I think I can find better investment options elsewhere.
