Is it a good time to buy penny stock Woodbois?

The price of penny stock Woodbois is down 36% this year and just hit a new 52-week low. Can it bounce back?

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Penny stock Woodbois (LSE: WBI) hit a new 52-week price low of 2.6p on 26 October 2022. In the year to date, the stock has lost 37% of its value and currently trades at around 2.8p per share. It’s always tempting to look at low prices and compare them to past values. For example, Investors were willing to pay 9.4p for Woodbois shares on 5 May 2022.

I could look back further. At one point in May 2017, Woodbois shares were worth 22p. Looking even further back to February 2011, Woodbois was still a penny stock but traded closer to a pound one than at any other time in its history at 53p per share. Could it get there again?

AIM-listed penny stock

Woodbois is still an AIM-listed penny stock, but it is a very different company now than it was back in 2017, let alone 2011. Woodbois was formally known as Obtala when it was a diversified African resources company. In 2011, it held exploration licenses for diamonds, iron ore, and tin in Sierra Leone and Tanzania. These activities appear to have captured investors’ minds over a decade ago. Its forest concessions probably did not get as much attention.

In 2017, the company had assets in Tanzania, Gabon, and Mozambique. But the diamonds had gone. The company was involved in agriculture, food processing, and forestry. By 2019, the company was entirely focused on wood after disposing of a fruits and vegetable business in Tanzania. It changed its name to Woodbois in March of that year.

Woodbois had $66m in net assets in 2011. Today it reports closer to $260m, yet its share price today is a fraction of what it was back then. How can that be? Well, I imagine that the possibility of striking a rich vein of diamonds or tin can inflate a stock’s price well beyond its identifiable asset base much more than owning a lot of forestry concessions can.

Carbon offsets

I think Woodbois is a better business now than it was back then. It owns 485,373 hectares of forest concessions across Gabon and Mozambique. Trees are harvested from these concessions and processed into lumber and veneer products for sale through its trading arm. Woodbois has been steadily increasing its revenues from these operations over the last five years and is getting closer to reporting a profit without the assistance of substantial non-cash gains.

I certainly don’t think it is the type of business that can support a quick run-up in price to 2011 levels. There was a lot of expectation baked into that 2011 number. It has a new business line that could see it get involved in the market for carbon offsets and afforestation projects. There are viability and regulatory hoops for this carbon solutions business to get through, but it could get the share price moving again if it does. The company’s existing operations could also grind its share price higher if they continue the way they have been going.

But ultimately, I don’t own Woodbois in my Stocks and Shares ISA and I don’t think now is a good time to add this speculative penny stock. But I am keeping a close eye on the company to see if it can change my mind.

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.

James McCombie 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.

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