The Woodbois (LSE: WBI) share price has been on a hair-raising journey during 2022.
The African timber provider is down 15% since the start of the year. At 3.75p per share it’s also more than halved in value from the year’s heights of 9.39p struck in May.
Woodbois volatility shows the perils of investing in penny stocks. Low volumes and cheap prices leaves these small caps in constant danger of wild fluctuations. It doesn’t always take a barrel of bad news to cause them to collapse either.
I wouldn’t be shocked to see the Woodbois share price sink again. But as a long-term investor, should I consider buying the wood producer?
Shark tank
Penny stocks are a popular hunting ground for retail investors seeking white-hot growth shares. These can experience bouts of manic buying for even the slightest reason.
In the case of Woodbois, the shares exploded back in May as ‘forecasters’ tipped stratospheric price gains. A paid-for research piece claimed that the timber titan could soar 1,000% in value.
On that the starting pistol for the feeding frenzy began. And it ended almost as quickly as it started, leaving many investors out of pocket.
Good news!
Could it happen again? Of course. Woodbois shares soared and slumped almost exactly a year before in April 2021.
The release of highly impressive financials helped fuel the wild share price swings in May. And trading at the business has remained encouraging since then.
Revenues soared 38% in the six months to June, as sawn timber and veneer production leapt 37% and 50% respectively. This caused pre-tax losses to more than halve year on year, to $489m.
A continuation of this trend could see another share-price-shocking buying frenzy occur.
Should I buy Woodbois shares?
As I mentioned above, I’m an investor who buys shares once I’ve taken a long term view. The prospect of temporary volatility — whether extreme or not — doesn’t put me off.
When it comes to considering Woodbois shares, there’s a lot that I like.
I believe demand for its hardwood and hardwood products could soar in the years ahead. This isn’t just because construction activity looks set to grow (and particularly in emerging markets on account of increased urbanisation).
It’s also because builders are increasingly moving away from energy-intensive and environmentally destructive materials and choosing wood products instead. It’s a trend that’s tipped to intensify too as steps to tackle the climate crisis accelerate.
The Woodbois carbon credits business opens up another possible avenue for splendid earnings growth.
The danger for investors is that Woodbois only operates in Gabon and Mozambique. These territories have been subject to extreme political turmoil in recent years. Fresh flashpoints could present a big problem for the company’s operations.
So should I buy the shares? I’m seriously considering it. From a long term perspective I think the potential rewards might outweigh the risks.