Shares in natural forest asset company Woodbois (LSE: WBI) are getting a lot of attention at the moment. Last week, Woodbois was actually the most bought stock on Hargreaves Lansdown’s investment platform.
Is this a stock I should consider for my own portfolio? Let’s take a look.
An introduction to Woodbois
Woodbois is a Guernsey-based company that manages natural forest assets in Africa, and produces and trades responsibly-sourced hardwood products. It has also expanded into carbon services and is focused on implementing large-scale forest carbon initiatives to help mitigate climate change.
The company is listed on London Stock Exchange’s Alternative Investment Market (AIM) and currently has a market capitalisation of about £176m, meaning it’s a small company.
Why is the WBI share price rising?
Woodbois shares have had a good run recently. Indeed, since early April, the share price has jumped from below 4p up to 6.5p.
In terms of why the share price has risen, I put it down to two factors. Firstly, the group recently posted a good update for Q1 2022. For the quarter, revenue was up 22% to $5.6m. Meanwhile, it noted that it had its best quarter for volume of product shipped since the start of the pandemic.
Secondly, there has been a paid-for advertisement/research article for the company recently floating around online. This has really ignited interest in the stock, pushing its share price up dramatically.
Should I buy Woodbois shares today?
As for whether I’d buy Woodbois shares for my own portfolio today, I’m not convinced that the risk/reward is attractive here.
Don’t get me wrong, there are things to like about the company. It certainly appears to have some momentum at present.
For example, in the Q1 update, the group told investors it continues to see strong demand for its high-quality products from customers in all parts of the world and that it was on track to deliver “strong revenue and profit growth” in 2022.
It’s worth pointing out that the one analyst covering the stock expects revenue to come in at $27.4m this year, up 57% year-on-year.
However, there are also a few major risks that concern me. One is that the group could run out of money in the near future. At the end of March, it only held cash of $2.6m. So it may need to raise money from shareholders this year.
Another risk is that the company operates in Mozambique, which can be a politically unstable at times. This adds a bit of uncertainty.
I’m also concerned that CEO Federico Tonetti recently left his role after just five months in the job. This is a bit of a red flag, to my mind. He has been replaced by Paul Dolan, who has a financial background and previously worked at banks and hedge funds. This also adds risk.
Finally, after the recent share price spike, there’s always the chance that the stock could have a sizeable pullback. Given that the company has a poor track record in terms of profitability, it’s hard to know how much it is really worth.
Given the risks here, I think there are better growth stocks to buy today.