The Woodbois (LSE:WBI) share price has been a retail investing favourite over the past couple of months. The doubling in price over the course of April and early May certainly attracted attention. However, what has impressed me is that the share price has managed to hold on to a decent amount of these gains, closing last week just below 6p. So could it now make a push to double-digits?
The story so far for Woodbois shares
The company produces and supplies African hardwood and hardwood products. It’s built a successful business over the years. The logistic issues associated with the pandemic meant that the business posted a loss for 2020, but it was able to bounce back strongly in 2021 to post EBITDA of $1m.
The full-year report was released at the start of April, so some of the jump in the share price can be associated with the positive news it contained. Not only was 2021 a good year, but the outlook is also better for the current 2022 financial year.
For much of the past year, the Woodbois share price was trading in the 3p-6p range. After the results, the share price went from 3.75p in early April to above 9p in early May. Aside from the good news, I think there was also a lot of speculative buying from investors who jumped on the bandwagon.
The company is a listed small-cap stock, which means that it doesn’t take much extra buying or selling to move the share price. I think that it was pumped by investors seeking high short-term returns.
Why 10p could be the next stop
What has surprised me is that even after short-term buyers sold out for a profit, the Woodbois share price is still holding ground. Initially, I thought the shares would drop back to where they started, that is, around 3.75p. But the stock traded for the whole of last week in the 5.5p-6p range.
This makes me think that longer-term buyers are holding based on fundamentally sound reasons. It could be due to the new partnership with World Forest ID announced in May. This should help Woodbois to gain a better reputation in the sector due to the increased traceability of the wood.
Further, based on its upbeat outlook, the company could perform well this year and beat targets, supporting a higher share price. It has mentioned growth in the carbon credit trading space. Clean energy is a hot topic right now. And if supply chain disruptions ease later this year, the company should be able to deliver quicker than expected.
On that basis, I feel 10p could be the next stop. It’s a 70% jump from current levels, which I know is a stretch and clearly isn’t guaranteed. However, the stock has already jumped 60% in the past two months (it’s up 2% over the past year). If the company sees a jump in its 2022 earnings similar to last year’s rise (around $2.7m), I think a share price of 10p is achievable.
So will I buy? No. Even with the potential for a 10p share price, it’s too much of a risk in my opinion. There’s potentially high reward, but I don’t know this sector well enough to be confident on this investment.