In the past month, the Woodbois (LSE: WBI) share price has more than doubled. Despite the gain, the shares are still trading at just 8p, at the time of writing. The company still has a decent market-cap though, at £150m. So it’s not tiny.
But we have seen a couple of large shareholders trading in recent weeks, and that can have a disproportionate effect on a penny stock.
All it takes is a handful of shareholders with holdings in the tens of percent, and it can reduce the freely available number of shares. And that means heavy trading can have a big influence. It’s one of the reasons I’m wary of low-priced penny shares.
Penny share caution
I also pay attention to the price spread. Right now, there’s a 2.5% difference between the buying and selling prices, which means I’d need a 2.5% gain just to break even. After doubling in a month, that’s not a lot. But it is another factor I consider when buying penny shares.
There’s also volatility. The Woodbois share price might have just doubled, but over the past 12 months it is practically unmoved. That’s because there was a similar spike in April 2021, which quickly fell back:
Woodbois share price spike
Woodbois is in the business of sustainably-produced African hardwood. But there is more to it than that. The company announced the launch of its Carbon Services business in March 2021, which most likely explains the share price spike last year.
Is the current world energy crisis producing renewed interest in Woodbois’ carbon business? Combine it with a positive first quarter reported in April, and a few big investors trading the stock, we can easily end up with those price swings.
Profit growth
The latest update shows Q1 revenues up 22%, with an improved gross profit margin of 23%. Sawmill and veneer production were both up, by 24% and 13% respectively.
The company described as its “best quarter for volume of product shipped since before the pandemic,” and reckons it is “on track to deliver strong revenue and profit growth” in 2022.
So will I tuck away some Woodbois shares in my own investments? I think it’s hard to judge the company today, because it could be a very different prospect in a few years time.
Right now, revenues and profits are coming directly from timber. But Woodbois is working towards its first carbon sequestration project. It still needs FSC certification, which will take some time. The company also says it will be carbon neutral in its operations no later than 2035.
Ten years
Ten years from now, we might be looking at significant contributions from carbon credits and carbon sequestration. But there are risks if I put too much store in these opportunities — unhatched chickens and all that.
Because of the penny share nature of Woodbois and the volatility that can bring, I will be especially cautious. For now, I am going to watch — and do some more research.