But is the risk-reward balance worth it? And can investors actually get rich by investing in such companies? Let’s explore.

What are penny stocks?

Penny stocks is a term used to describe shares of a publicly listed company that is very small. While some variations exist, a business is typically placed into the “penny” category if they have a low share price of less than £1 and the total market capitalisation is less than £100m.

Due to their small size, these companies are often financially weak, with limited resources, and have unproven business models. This makes them highly susceptible to insolvency, especially during times of economic turmoil. It’s also the reason why penny stocks are notoriously volatile and risky.

In fact, a 2012 study investigated the performance of penny stocks in the US between 2001 and 2010. The results showed that, on average, penny stocks delivered a -60.54% annual return to investors, with share prices being roughly 2.9 times more volatile than companies listed on the Nasdaq exchange.¹

Despite the high risk associated with penny shares, they remain incredibly popular among investors with a high-risk tolerance. Why?

For short-term traders, the stock price volatility creates opportunities to profit from large swings in valuation. But for long-term investors, if a penny stock can beat the odds and achieve success, the potential gains can be ginormous.

Popular UK penny stocks to watch

Penny stocks tend to fall in and out of fashion incredibly quickly, but some do retain interest longer than others. However, it’s worth mentioning that popular penny stocks are not necessarily the best penny stocks to buy. That’s why keeping an active watch list is often a terrific idea for tracking young companies that show promise, but need more time to develop.

Argo Blockchain

Argo Blockchain is a cryptocurrency mining firm that specialises in Bitcoin. The group owns and operates many mining farms in the US that use sustainably sourced energy to mine digital tokens.

With most of its assets held in Bitcoin, any collapse of the cryptocurrency price can lead to similar volatility in the Argo Blockchain share price. This highlights the highly cyclical nature of the business. Nevertheless, if digital currencies continue to see increased adoption, it could be an interesting penny stock to watch.

Woodbois Ltd

Woodbois owns and operates a collection of sawmills and veneer factories based in Africa. It plays a critical role in the supply of hardwoods and softwoods to the region as well as the general global markets.

Today the company has a material portfolio that spans over 23 hectares of forest. However, the firm’s unique operating procedures put a lot of emphasis on sourcing materials sustainably through reforestation. Despite its small size, the group is currently the eighth-most sustainable timber supplier worldwide, making it a potentially lucrative penny stock to watch.

However, further instability could harm the company’s ability to generate consistent, positive cash flows.

How to buy penny stocks in the UK

Penny stocks are bought and sold just like any other publicly traded company. However, due to their small size, these businesses are typically listed on the London Stock Exchange’s Alternative Investment Market (AIM). However, there are some exceptions.

Shares listed on AIM are subject to less strict financial regulations when it comes to reporting information to shareholders. And this can make analysing such businesses trickier due to the reduced level of insight.

Most British investment accounts allow investors to access AIM to buy and sell shares as they do with the main market. This includes special tax-efficient accounts like the Stocks and Shares ISA and Self-Invested Personal Pension (SIPP). However, there are some exceptions.

Due to the higher-risk nature of this stock market segment, not all brokerages provide this access. Therefore, an investor seeking to buy shares in a penny stock listed on AIM must open an investing account with a broker or gain access to a trading platform that allows this.

How is penny stock trading taxed in the UK?

Please note that tax treatment depends on the individual circumstances of each individual and may be subject to future change. The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of tax advice. Readers are responsible for carrying out their own due diligence and for obtaining professional advice before making any investment decisions.

The taxation process for penny stocks is very similar to any other form of equity investment. Therefore, the tax protection status offered by a Stocks and Shares ISA still applies.

If a regular investment account is being used, then capital gains and dividend taxes from penny stocks are calculated as normal. However, the key difference is the treatment of stamp duty.

Under normal circumstances, an investor purchasing shares in a UK-listed company must pay stamp duty reserve tax. This is equivalent to 0.5% of the total transaction amount. For example, investing £1,000 would result in a £5 fee.

However, shares listed on the AIM are not subject to this tax. And therefore, when purchasing penny stocks listed on AIM, there is no stamp duty to be paid.

Can you get rich trading penny stocks?

Buying shares in a successful business while it’s still in its early stages is an enriching process. It’s not uncommon for investors to enjoy triple- or even quadruple-digit returns over the long run should a small enterprise eventually become an industry leader.

The possibility of ginormous returns is why penny stocks are so popular. But with massive rewards come massive risks.

As previously stated, the stock market’s average return of penny shares is pretty abysmal. The vast majority end up failing to deliver on expectations, leaving many excited investors with little or nothing left of their original investment.

Therefore, penny stock trading for the short term or investing in the long term can be a successful path to becoming rich. However, the odds of succeeding are exceptionally slim.

Do penny stocks go to zero?

As previously mentioned, the weak financial position most penny stocks find themselves in makes them highly volatile investments.

In many cases, the valuation of a business operating in this segment of the stock market is driven by mood and momentum. If investors are feeling optimistic, a penny stock can start climbing significantly just based on expectations of future returns. However, the opposite is also true. When valuations are driven by expectations rather than fundamentals, the slightest hiccup can open the door to a lot of volatility.

This is most commonly seen with young mining exploration or biotech businesses. If successful, these companies can tap into enormous revenue streams and market opportunities. However, evolving from a research-based operation to a production-based one is never straightforward, and there is a high probability of failure along the way.

A mining feasibility study or early clinical trial result that doesn’t provide positive news can cause all the excitement surrounding a business to evaporate, wiping out the share price in the process. And in some cases, if developments end up compromising the long-term potential of a penny stock, it can collapse to zero, leaving investors with nothing.

With that in mind, keeping a list of penny stocks to watch can be a wise move. If a promising young enterprise is trading at an unreasonable valuation, investors can keep tabs on it and wait for a better price. Similarly, if a business has promising technology but needs to prove its financial viability, keeping on a watchlist could help investors stay ahead of the pack when new information comes to light.

Are penny stocks worth it?

Penny stocks are not for everyone. Investing early in a business is already incredibly risky by itself. However, things only get more intense when volatility enters the picture and makes investors constantly question their decisions.

Yet, in exchange for all this risk, investors are granted the opportunity to snap up shares in a business that could explode over the long run. And there are quite a few stories where a small early investment can skyrocket into a mountain of wealth. Those who invested in Apple or Microsoft back in the 1990s know this all too well. That’s why keeping a list of penny stocks to watch might be a prudent decision for investors with a higher risk tolerance.

In more recent years, penny stock investors have also seen some terrific returns. For example, over the last 12 months ending in April 2025, some of the biggest winners on the London Stock Exchange have been penny stocks.

• Quadrise – Up 185%
• Filtronic – Up 104%
• Metals Exploration – Up 40%

Deciding whether or not penny stocks are worthwhile ultimately depends on the individual and their circumstances. Investors who have a low tolerance for risk likely won’t find penny stocks enjoyable or suitable for their portfolios. Yet growth-focused investors with a stomach for volatility may find them to be an exciting opportunity to explore as part of their portfolio.

Alternatives to investing in penny stocks

While penny stocks can bring a lot of excitement to the investing process, their high-risk profile makes them unsuitable for many individuals. Fortunately, there are alternative options for high-reward-seeking investors,

Small-cap stocks share a lot of characteristics with penny stocks. After all, these businesses are still young, offering plenty of upside potential. However, small caps also often have a more established financial and operational position. So, while they are still a risky investment class, the probability of failure is significantly lower than that of penny stocks.

Having said that, small-cap stocks are still sensitive to economic conditions. And over the last five years we’ve had plenty of market turbulence capturing the pandemic, inflation, and most recently a trade war.

As a result, when looking at the leading small-cap index in the UK – the FTSE AIM 100 – investor returns have been pretty weak. In fact, the average annualised return between April 2020 and April 2025 has been just 0.7%. By comparison, the UK’s flagship large-cap index, the FTSE 100, achieved a far better annual return of 12.6% over the same period.

Obviously, some businesses have faired far better than others. But it goes to show that even with small-cap stocks, there are still plenty of risks and economic sensitivities that investors must consider.

In other words, during times of market turbulence large-cap stocks tend to outperform. But when times are good, the opposite is true. In fact, looking at the five-year period between 2016 and 2021, the FTSE AIM 100 was actually ahead by a significant margin at 9.4% versus around 6% for the FTSE 100.

The post UK Penny Stocks: Can They Make You Rich? appeared first on The Motley Fool UK.

Recently, I stumbled across two companies that have piqued my interest. Investors may want to hold off from buying shares today. But keeping an eye on how they develop in 2023 and beyond could reveal future buying opportunities.

Sustainably supplying wood

A lot of excitement surrounding Woodbois (LSE:WBI) emerged earlier this year. In fact, the share price soared to as high as 9.39p in May, only to come tumbling down to around 2p today.

As a quick reminder, Woodbois owns and operates sawmills and veneer factories in Africa. With around 23 hectares of forest at its disposal, the group provides a steady stream of hardwood and related products. Meanwhile, with a reforestation division, the firm operates in an environmentally friendly way, ranking as the eighth most sustainable timber supplier worldwide.   

The latest quarterly results showed revenues growing by 29%, reaching $5.8m. This largely stems from increased production as sawmill and veneer activities surged by 78% and 45% respectively, compared to last year’s average.

Needless to say, that’s good. So why has the penny stock taken such a beating? It seems investors got a bit overeager, sending the valuation to frankly absurd levels. Even today, after dropping by 50% in the last 12 months, its market capitalisation stands at around £52m. That puts the price-to-sales ratio at a lofty 10 times!

Given time, the firm may grow enough to justify the high price tag, making it a good story to watch closely. But for now, it’s an expensive stock with a lot left to prove.  

Can this penny stock make a comeback?

Before the pandemic, Cineworld (LSE:CINE) was a seemingly thriving enterprise sating the appetites of growth investors. Yet a decade of borrowing ultimately led to its demise when Covid took a sledgehammer to its cash flow. And in the space of two years, the group went from the FTSE 250 to penny stock territory and even filed for Chapter 11 bankruptcy.

But there may be a glimmer of hope. At the start of November, management reached a settlement agreement with its creditors and landlords. Beyond wiping out $1bn from its loans, the group has some breathing space to get things back on track.

With an impressive line-up of new blockbuster titles and Covid restrictions no longer disrupting operations, optimism for a comeback is brewing. But as exciting as that would be, there remains a long road ahead. The firm still has a multi-billion-pound pile of debt, and with interest rates on the rise, profit margins aren’t likely to be restored anytime soon.

Nevertheless, it’s certainly an interesting story to follow. And once a clearer picture of its financials emerges, investors may be able to judge just how long its recovery might take.

The post 2 penny stocks to watch closely in 2023 appeared first on The Motley Fool UK.

Even so, the share price of the sustainable wood producer is down nearly 50% over the past six months. So will I buy?

Trying to see the wood for the trees

Warren Buffett advises we only invest in companies that we understand. How easy is that? Well, revenue and profit are straightforward, but these are just two measures of performance.

More illuminating information is often found lower down in a company’s balance sheet. Woodbois is a perfect example of this.

A brief history

At the end of 2021, it valued its forestry at $337m, nearly five times greater than its market cap, suggesting its shares are undervalued. However, on a closer look, things become more blurred.

Do bear with me here as it can get a little numbers-heavy, but I think it’s important for understanding the company.

Woodbois first recognised trees on its balance sheet in 2013. Following a detailed review of its holdings, the directors said: “This is the first year in which a fair value can be reliably assessed and therefore the standing timber can be fair valued.”

Accounting standards require directors to value biological assets using discounted future cash flows. Certain assumptions are made concerning the number of trees felled, timber prices, operating costs and discount rates. Using this method, the directors deemed the forestry owned was worth $162m.

In 2015, it acquired further concessions in Mozambique and judged that these had a fair value of $13m.

Two years later, a Danish forestry company was acquired. The purchase price was $7m and the trees purchased were valued at $53m. At the same time, following export restrictions being imposed, the existing portfolio of trees was written down by $35m.

In 2020, after applying the accounting standards referred to above, the directors assessed that the holdings in Gabon should be increased by $41m and the forestry in Mozambique reduced by $32m, resulting in a net gain of $9m.

The following year, Woodbois paid $1.5m for a company that owned 71,000 hectares of forest concessions. This was immediately included on its balance sheet at a value of $128m. Woodbois claim the seller didn’t have sufficient funds to cut the trees.

What does this mean?

From 2013 to 2021, the company acquired forestry, for a minimal cash outlay, which it values at more than $300m.

The directors have done nothing wrong. They’re making estimates of the profit that the trees will generate over the remainder of the leases. But given the large numbers involved, the calculations are highly sensitive to the assumptions made.

For example, a 10% fall in the selling price of timber would result in a $42m reduction in the fair value of the concessions. A 10% decrease in the volume of trees that can be felled each year, would lead to a $35m write-down in the assets.

If both of these were to happen, the carrying value of the trees on the Woodbois balance sheet would need to be reduced by more than the stock market valuation of the company. That’s why I won’t be investing, even with the share price below 2.5p.

The post Should I rush to buy Woodbois shares while they’re still under 2.5p? appeared first on The Motley Fool UK.

But the gain soon fell away. From a 52-week high of 9.39p, we’ve seen a steady decline to today’s 2.45p. That’s a 74% loss for those unfortunate enough to get in at the peak.

How to value shares in a company that has not yet shown sustainable profits is difficult, but there are a few things I like to look at.

Bubbles

Firstly, I’m very cautious of trying to take anything from this year’s share price performance.

It’s easy to think it’s a new company entering a possible growth phase for the first time. But the current Woodbois came about in 2019 after a restructuring and a renaming. Previously, under the name Obtala Limited, its shares had reached over 50p in 2011.

That bubble burst, but a new one reached 22p in 2017 before deflating again. In 2021, the now Woodbois shares reached a similar level to 2022’s high, and then fell. The record shows repeated booms and busts, progressively getting smaller. But that’s just an aside, really, to show the folly of relying on share price charts.

Valuation

Analyst forecasts need to be treated with caution. But at least an upbeat forecast, suggesting a low future valuation, can improve my confidence to some degree.

But my usual sources show no forecasts for Woodbois, so I only have what the company itself says to go on.

In the first half of this year, Woodbois reported its first ever operating profit, of $15,000. The trouble is, the company recorded a net cash outflow from operating activities of $78,000 — which is actual cash, not accounting profit and loss. And it was all eclipsed by millions going out in investing costs, and millions coming in from new financing.

Reports

In general, I’ve found reports from Woodbois to be hard to assess properly, usually loaded with one-off items that make the underlying business difficult for me to get any handle on.

For example, FY 2021 results showed a “gain on bargain purchase” of $88m, which the company included in its bottom-line profit figure, though it amounted to no actual cash flow. If these things fall away in future results and I can get a clearer view of operations, I’ll be a good bit happier.

But looking back to the Obtala FY 2017 results, even then there was a “gain on bargain purchase” of $37m. And again it was included in profit figures, though it represented no actual cash. These kinds of accounting items are, I expect, common in this kind of business. But they make it very hard to analyse a company.

Verdict

The bottom line for me is that I really can’t see any way of quantifying the future prospects for Woodbois. I can’t help thinking there must be good profits to be had from sustainable hardwood, and from the carbon credits industry.

But when I find a company’s accounts as difficult to assess as these, I’m not buying.

The post Should I buy Woodbois shares right now? appeared first on The Motley Fool UK.

But what about five years from now?

The bear case scenario: more dilution and no profits

Woodbois is still unprofitable, so it’s not a self-sustaining business. As a result, it has constantly needed fresh injections of capital to stay afloat.

Of course, there’s nothing inherently wrong with this. Issuing stock is a frequent move by companies as a means of raising capital through public markets.

But the rate at which the timber company has done this is alarming to me. The number of Woodbois shares in issue has multiplied more than fivefold in the last three years.

A rapidly rising share count makes it very hard for earnings per share (EPS) to grow along with net income. That’s because the earnings are spread more thinly across a lot more shares.

I think this stock dilution is a large part of why the shares are down 85% over the past five years.

Anyway, let’s fast-forward to 2027. I’ll assume Woodbois is still posting no real profits, its promising carbon credit division never got off the ground, and there was more dilution of shareholders along the way. In this scenario, I reckon the shares would be worth even less than they are today. Maybe less than 1p.

Alternatively, Woodbois could be acquired, or simply go bust if it continues to bleed money.

The bull case scenario: profits and carbon credit revenues

Another angle is that the company would be making some progress towards profitability, albeit slowly. After all, there was an operating profit of $15,000 for the first half of the year. This was on revenue of $11.3m, mind, and certainly didn’t cover the company’s cash outflow.

But let’s not beat around the bush here. I’m sure the bull case rests almost entirely upon what happens with the company’s fledgling carbon credit division.

The voluntary carbon market could be valued as highly $30bn in the coming decade, according to the company. This market allows carbon emitters to offset their emissions by purchasing carbon credits from greener companies, such as Woodbois (possibly).

If there’s genuine progress with the firm’s carbon offsetting operations, then there could be massive upside in the share price.

Of course, this is all hypothetical. Nobody really knows how things will pan out, least of all me. But I can imagine a bull case scenario in the share price, where single pennies become double-digit pennies again.

That being said, I think we’d need a change in market sentiment to support a sustained rally in the share price. And that seems a long way off, considering a global recession might be just around the corner.

My verdict

I think the future lies somewhere in the middle for this growth stock. I expect to see some sort of progress on the company’s carbon credit operation, yet probably not skyrocketing revenue growth. But I also anticipate more stock dilution and lumpy growth along the way.

So I’m still not ready to buy Woodbois shares just yet.

The post How much could Woodbois shares be worth in 5 years? appeared first on The Motley Fool UK.

Sometimes a company captures the collective imagination of the private investing community. And I reckon Woodbois (LSE: WBI) shares represent one such business. There seems to be an insatiable interest in every move the enterprise makes. But why? It’s time for me to investigate whether I should be adding the stock to my long-term investing portfolio.

Fast-growing revenue

The company is an Africa-focused forestry enterprise. And it has three divisions. One produces sustainable African hardwood products. Another trades hardwood and hardwood products. And the third is a reforestation and carbon credit operation. 

I think the excitement about Woodbois arises because the company has been growing revenues at a blistering pace. And in June, with the half-year report, the company notched up its “first ever” operating profit. In the first six months of the year, the business delivered $15k of profits at the operating level versus a loss a year earlier of $0.7m.

And that outcome looks like encouraging progress. However, there seems to be an issue with cash. In the first half of the year the company produced positive operating cash inflow of just $0.2m versus an outflow a year earlier of $2.2m. Progress, yes. But that’s a long way below the figure for operating profit.

We found out more in August with the third-quarter update. I looked for the updated operating profit figure. But I couldn’t find it. Instead, there was impressive-looking growth in the figures for revenue, gross profit and production levels. But I’m in the dark about recent performance regarding operating profit.

Meanwhile, I compared the cash balance figures in the first-half and third-quarter reports. On 30 June, the company had $2.1m in the bank. But by 30 October, the balance had dropped to $1.4m. So, despite progress with revenue, the business appears to be burning cash.

Is there a cash crunch coming?

However, that’s not an unusual situation for a fast-growing enterprise. And it can be especially true when a business is investing money to expand its production facilities. However, there’s always a danger that cash flow and profits can’t keep pace with the fast expansion of a business. And that could be happening with Woodbois now. Indeed, looking at those cash figures, it seems the business may be heading for a cash crunch. And that could lead to the need to raise more funds.

But such an outcome isn’t certain. After all, in August, chief executive Paul Dolan said in the third-quarter report the business delivered “record quarterly revenues, production and margins.” However, he sounded a cautious note by adding the current worldwide uncertainties means the firm will “continue to be resilient and adaptable.”

Nevertheless, he is looking forward “with confidence” to further growth in 2023 and beyond. But he didn’t specify whether the growth will likely be in revenue, cash flow, profits or all three.

The full-year results, due in March 2023, will reveal more about the situation regarding profits and cash flow. But the verdict of the stock market has been brutal for shareholders. A year ago, the share price was around 4.8p and today it’s near 2.68p.

Is Woodbois a bargain or a basket case? I’m waiting for the next set of trading and financial figures before deciding about that.

The post Are Woodbois shares a bargain or a basket case? appeared first on The Motley Fool UK.

Woodbois shares are charging right now. But as a potential investor I need to remember that volatility is common among penny stocks like this. Prices can fall as suddenly and as sharply as they rise.

So should I buy the timber titan today? Or does it carry too much risk?

The case for

The possibility of share price choppiness isn’t a dealbreaker when I buy shares. This is because I invest in companies with a view to holding them for the long term, perhaps a decade or more.

Over this sort of timeline, the impact of temporary volatility — whether caused by company, industry, or economic factors — on my returns can be greatly reduced or even eliminated.

As in other aspects of life, the cream rises to the top when it comes to investing. And I’m confident that the UK shares I buy will deliver big profits (and share price gains) over the long term.

In the case of Woodbois I’m quite confident of strong earnings growth as timber demand rapidly improves. In addition, its involvement in the carbon capture business adds an extra reason to be excited.

The case against

Having said that, long-term investors like me still need to be mindful of volatility when it comes to penny stocks.

I might buy Woodbois shares with a view to holding them for several years. I could even want to stay invested for the rest of my life.

However, I could find myself in a situation where I’m forced to sell them for reasons out of my control. Alternatively, I might find what I consider to be a better investment opportunity, and want to offload my penny stock holdings to get involved.

I could potentially hang onto them for the long term so I don’t make a loss. But I would lose the chance to latch onto that exciting investing opportunity.

I therefore could make a loss if I sell out in the short-to-medium term. There’s a chance I could end up selling them for a lot less than I bought them for.

The verdict

The question, of course, is whether Woodbois shares are worth me taking on this risk.

Like any investor, I don’t have a bottomless reserve of cash to draw upon. But with funds to invest I’d happily buy the timber producer today. This is because sales of its natural products looks set to soar.

Demand for timber is tipped to rocket as populations grow and global construction rates increase. Sales of wood-based products will also grow as builders shift towards more environmentally-friendly products.

Analysts think the global timber and wood product market will grow 35% between now and 2027 (to $844.3bn). And Woodbois, with its wood-producing assets in Gabon and Mozambique, could prove a lucrative investment on the back of this.

The post Should I invest in Woodbois as its share price soars? appeared first on The Motley Fool UK.

I’m looking at three things that could persuade me to buy Woodbois shares. But each of them is a bit double-edged.

Revenue growth

Woodbois is in its early operational stages in Gabon, but revenues are rising. For the first half of the year, revenue grew by 38%, to $11.3m.

Production of sawn timber and veneer products both increased, by 37% and 50%, respectively. And we saw the highest volumes shipped since the pandemic.

But how does that old investors’ saying go? “Turnover is vanity, profit is sanity, cash is reality.”

Revenue growth is needed, and what we’ve seen does look good. And Woodbois did record its first ever operating profit in the half. But it was tiny at just $15,000, and didn’t come close to the period’s cash outflow.

Seeing revenue rising like this is encouraging. But the big risk lies in the time it might take to reach sustainable positive cash flow, and what further funding that might need.

Valuation

The thing I most look at when I consider buying a stock is its valuation. I like to see quantifiable fundamental metrics, like price-to-earnings ratio, dividend yield, and things like that. With Woodbois now, that’s largely impossible.

The best I can come up with is a price-to-sales ratio (PSR). If I assume first-half revenue will double for the full year, to $22.6m, that gives me a PSR of three. I think that’s attractive, particularly for a company at an early stage in its progress.

If trends continue, we should see further revenue growth in the second half. And that would bring the PSR down below my current estimate. But there’s little else I can meaningfully measure.

Woodbois is a very difficult company to value right now, even with one estimated measure that looks positive.

Losing money

This one might seem a little facetious, but it’s a serious point. To buy Woodbois, or any other ‘jam tomorrow’ growth shares, I’d have to be prepared to lose my money. And I mean all of it.

If I picture a worst-case scenario, it would be Woodbois running out of cash and going bust. I don’t think that’s likely to happen, but it would mean a 100% loss, and I’d have to be prepared for it.

A less bad outcome might see Woodbois reaching sustainable profits, but needing huge new funding to get there. I might face massive dilution of my holding, and lose a large amount of my money. In fact, the number of shares in issue has already multiplied more than fivefold between 2019 and 2022.

To put it another way, to compensate for the risk of losing my investment I’d need to see a high probability of Woodbois turning into a multi-bagger. Right now, I’m not sufficiently confident of that. For me, the risk-to-reward ratio is too high. I’ll just keep watching.

The post 3 reasons to buy Woodbois shares today appeared first on The Motley Fool UK.

Back to the future

We just saw a remarkable jump in the Cineworld (LSE: CINE) share price.

After news that the cinema chain has made progress in its Chapter 11 bankruptcy proceedings, Cineworld shares have more than trebled in price. They settled back a little but, at 6p as I write, they’re changing hands rapidly.

We’re still looking at a 90% price fall over the past 12 months. So it’s clearly too early to think everything’s fine again now. But at least the latest agreement to start paying some rents has cleared the way for Cineworld to access more cash and make some debt repayments.

I think anyone considering buying Cineworld now needs to carefully examine its long-term prospects. I do think those are improving. But even if the company succeeds in finding a rescue package, we’d need to think about how much dilution current shareholders will end up facing.

Wood and carbon

Woodbois (LSE: WBI) has been a bit of a storied stock in 2022. Its share price spiked earlier in the year, but then fell back. And it’s had quite a volatile long-term ride.

The company is expanding in the renewable hardwood business in Africa. And it also plans a foray into carbon credits. The latter hasn’t reached its trial phase yet, so it will be some time before it can contribute anything.

With the Woodbois share price back down to 2.5p, as I write, is this a penny stock to buy now? The main concern I have is over cash.

Woodbois is just turning the corner into operating profit as revenues are rising impressively. But it’s some way from becoming cash flow positive yet, and the annual cash burn rate is rapidly depleting the balance sheet.

I see potential profit, but I have no idea how long that will take to turn into cash. Or how much more funding will be needed to get there.

Luxury cars

My final pick is not actually a penny share, at the time of writing, but it was priced below 100p the day before.

I’m talking about Aston Martin Lagonda (LSE: AML), which has been hovering either side of the penny share limit since early October. Right now, Aston Martin shares are down 94% in the past 12 months.

The latest weakness comes on the back of disappointing Q3 figures, and a downgrade in full-year expectations. Revenues increased 16% year-on-year. But the quarter’s pre-tax loss soared to £511m, from £189m a year previously.

Do investors now have a chance to snap up Aston Martin shares at a super low price? We’re back to that same issue again of not knowing when profits are likely to show up, or how long the cash will last before more is needed.

Verdict

Would I buy any of these? I see potential in all of them, and they might turn out to be good buys now. But they all face too much uncertainty and risk for me. So I’ll just keep watching.

The post 3 popular penny shares to buy in November? appeared first on The Motley Fool UK.

Size

Woodbois is not a very big company. Its first-half results showed revenue of $11.3m and an operating profit of $15,000. However, all of its key financial metrics are heading in the right direction.

Woodbois now has the capacity to produce 30,000 cubic metres of sawn timber each year. To put this in perspective, West Fraser, which Canadian Forest Industries claims is the largest lumber producer in the world, sold 11.2m cubic metres of timber in 2021.

Valuation

I accept that the Woodbois business model is different to that of its larger competitors. The company prides itself on producing sustainable timber. However, I am intrigued how a company that is barely profitable can have a stock market valuation in excess of £50m. The answer is international accounting standards and how biological assets (trees) must be accounted for.

At the end of 2021, the company’s forestry assets were valued at $337m. To come up with this valuation, Woodbois was required to forecast discounted expected future cash flows. This involves making certain assumptions concerning the number of trees harvested each year, the selling price for logs, and the cost of extraction.

A bargain purchase

The company’s last acquisition was in August 2021, when it purchased 71,000 hectares of trees in Gabon for $1.5m. This asset was then immediately re-valued and included on the Woodbois balance sheet at a carrying value of $128m. After tax, the transaction resulted in an accounting gain of $88m.

Such a bargain usually indicates a forced sale with the seller being in financial distress. Why else would someone dispose of a forest for $1.5m, when the buyer is able to put the same asset on its balance sheet at a value 60 times higher?

In a note to its accounts, Woodbois acknowledges that the seller was not in financial trouble. Instead, it says that the vendor was unable to obtain financing to operate the forest, and was under threat of losing it due to non-operation.

Something similar happened in 2017, when Woodbois paid $6.8m to buy a company in Denmark. Immediately post-acquisition, the acquired forestry was included on its balance sheet at $53m.

Woodbois is doing nothing wrong. But, the accounting treatment of its forestry assets does help to explain why the company’s market cap is apparently divorced from its current level of earnings.

What am I going to do?

I am not going to invest in Woodbois. To be honest, I fail to see the attraction.

By acquiring additional forests, and immediately re-valuing them, the disparity between earnings and assets is likely to continue to get bigger.

The post With the Woodbois share price under 3p, would I be mad not to buy? appeared first on The Motley Fool UK.