The Woodbois (LSE: WBI) share price has been generating a lot of attention this month. The AIM-listed growth stock started spiking up towards the end of April, reaching a 52-week high of 9.4p on 5 May.
That represented a 77% rise since the start of 2022. The price has dropped back a bit in the subsequent days, ending Wednesday at 6.1p. But trading volumes are still high. So what factors might drive the shares now, and in which direction?
There’s one thing about Woodbois that’s likely to be adding to the volatility. It’s a penny share with low stock liquidity. As of 9 May, the company’s six biggest investors held a combined 60% of the voting shares.
Limited share float
That suggests there is relatively little free float for private investors to buy and sell. And though trading volumes have been on the up, they’re still tiny compared to those big shareholdings.
We’ve also seen a paid recommendation making bold claims about how high the Woodbois share price is set to fly. It lacked any financial justification. But that kind of thing can push a low-liquidity stock sharply upwards.
When a stock is being influenced by these factors, it often doesn’t take much to shift the share price by big amounts. The volatility is clear from the price chart:
What’s behind it all?
Woodbois is in the sustainable timber business, producing responsibly-sourced timber from its forest assets in Africa.
The first-quarter update was out shortly before the share price started climbing. And it was the best quarter for product volumes since before the Covid-19 pandemic. Woodbois says it’s on track to deliver strong revenue and profit growth in 2022.
That all sounds good. But this is still a company that sells wood. And it’s a small one at that, with a modest turnover of $17.5m in 2021. Woodbois is also getting into the carbon credit business, though that seems to be very much in its early days.
The future
What might happen to the Woodbois share price next? Rises in building materials prices caused by the world’s current supply chain problems can surely only help. And over the long term, the combination of wood production and carbon credits trading might make for a very nice earner.
Right now though, Woodbois is really only on the cusp of turning profitable, and that makes valuations tricky.
Cash is king
Despite a 2021 profit, I take one key caution from the results. Woodbois was not cash flow positive, recording a $2.5m outflow from operating activities. In that light, the $2.6m cash it had at 31 March might be cutting it a bit fine.
If cash flow strengthens in the coming quarters and turns comfortably positive, I can see the Woodbois share price rising further. But if the company runs short and has to touch up the market for more funding, I’d expect a dip.
Would I buy? Right now, there’s too much short-term uncertainty and too much risk for me. But I will be watching future developments closely.