The Rolls-Royce (LSE: RR) share price has more than doubled since late 2020, when it dipped as low as 34p per share. Today, it stands at 82p. However, the shares are still down 36% this year.

It seems investors remain concerned that nearly half of the engine maker’s revenue comes from supplying the civil airline sector, which is yet to fully recover from the pandemic. The firm needs more aircraft with Rolls-Royce engines back in the skies as soon as possible.

Yet the company also has a very large defence division, where business is much healthier. So, could rising geopolitical tensions eventually feed through to a much higher Rolls-Royce share price?

A ‘New Cold War’ has probably already started

Addressing the United Nations last year, President Joe Biden said that the US does “not seek another Cold War or a world divided into rigid blocs”, and was not “asking any nation to choose between the United States or any other partner.”

However, Russia’s invasion of Ukraine has raised tensions between Moscow and the West to levels not seen since the days of the original Cold War. This has left most foreign policy analysts believing that a ‘New Cold War’ has already started, with the US and western nations on one side, and Russia and China on the other.

In response, lots of countries around the world have been bolstering their defence systems and securing contracts with military equipment providers, such as Rolls-Royce.

The UK government had committed to significantly increase its own military spending, with its defence budget having been due to rise to £100bn by 2030. Yet this is now in doubt, as the new British government plots spending cuts to get public finances in order.

Even so, many nations are still rearming in the face of increased military threats.

How could all this benefit Rolls-Royce?

Rolls-Royce has more than 16,000 military engines in service, with 160 customers in 103 countries, so the company is certainly a powerful player in the defence aerospace market.

The firm is also the world’s leading supplier of marine propulsion equipment, with its products found on more than 95% of the US Navy’s Surface Warfare fleet. The US Navy is the company’s largest naval customer, to which it provides propulsion equipment for frigates, destroyers, submarines, aircraft carriers, and many other vessels.

The company actually equips more than 70 navies worldwide, as well as military air forces. The hardware it builds for these customers accounts for around 30% of its underlying revenues today, but that could easily increase with rising defence budgets.

Should I buy the stock?

Rolls-Royce has been struggling with soaring inflation and supply chain issues. In the first six months of 2022, the company reported a loss of £1.6bn. And it also had net debt of £5.1bn on its balance sheet, as of June, which is far from ideal.

I think rising military budgets could provide a massive tailwind for the company’s defence division, and this may increase the share price. However, I don’t like to see established companies so debt-laden and still posting losses after decades in business. So I’d rather invest in other UK shares right now.

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Ben McPoland has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

ITM Power (LSE: ITM) stock has been on my radar for some time now. The green hydrogen company is backed by Linde (the world’s largest industrial gas company) and construction equipment maker JCB. It’s positioned at the heart of global efforts to decarbonise fuel and energy, so the potential of the company is enormous.

However, potential alone doesn’t cut the mustard in today’s market, and the share price is down a massive 84% over the last 12 months. Is this drop an overreaction or is it warranted?

Cutting-edge technology

ITM Power is headquartered in Sheffield, England, where it manufactures PEM electrolyser systems that help decarbonise various industries by harnessing the power of green hydrogen. These systems can be used by its customers for clean energy storage.

Hydrogen is the most abundant element in the universe. It’s light and can be stored for long periods. It emits only water and helps combat climate change. Proponents of green hydrogen say it can help decarbonise heavy industries such as steelmaking, chemicals and transport.

According to a Goldman Sachs‘ report, this gas could supply up to 25% of the world’s energy needs by 2050. The report predicts a $10trn dollar market for hydrogen halfway through this century.

That’s all well and good, but will ITM Power start producing any profits in the meantime so it’s still around in 2050?

The bad news

Nobody really knows. The company spooked investors last week after warning that it’s behind schedule in the development of its newest range of products. That means its full-year product revenue is likely to be towards the lower end of its guidance, which stands at £23m-£28m.

Due to the delays, the company needed more testing at its customers’ end to determine the correct warranty provisions for the new products. Management admitted it was unsure of its total warranty liability exposure, which “may result in a revision to EBITDA loss guidance”.

This means losses are probably going to be higher than expected this year. But the company is unsure by how much. This uncertainty was the root cause of the stock’s 32% drop the day all this was announced.

It hasn’t helped that long-standing CEO Dr Graham Cooley has announced he’s moving into a strategic advisor role. This leaves the company searching for a new leader at a crucial stage in its development. This is far from ideal.

Is this an overreaction?

Despite the risks relating to its warranty provision, I suspect this sell-off may be an overreaction. The green technology company still sees itself delivering 48MW-65MW of its products by the end of the year. And it actually has a backlog of customer orders. So I think the growth story is still very much alive.

Plus, the firm still expects to have £240m-£270m on its balance sheet at the end of the year. This means the company shouldn’t have to raise money any time soon. But the cash burn situation does remain cloudy for now.

Still, with a market cap of £502m after its 80% plunge, the stock now looks attractive to me. In fact, I’m ready to open a small starter position in it.

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Ben McPoland has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

The Hurricane Energy (LSE: HUR) share price has been on a tear this year, rising from just under 4p per share in January to nearly 7p today. But if we zoom out, that still leaves the stock down 77% over the last five years.

Is this the best small explorer around today or is there a better buy for my portfolio?

Solid results

Hurricane Energy’s assets are focused in the West of Shetland region of the UK. The first oil flowed from its flagship Lancaster field in June 2019.

In its 2022 half-year results, the company announced $159.5m in revenue compared to $124.5m in the same period last year. This generated $110.1m of operating cash flow, rising from $75.9m in H1 2021. Profit after tax was $67m.

Earlier this year, Hurricane repaid its outstanding $78.5m convertible bonds, plus interest. This left the company debt-free, and management is certainly bullish on the future: “With our strong balance sheet, no debt, and our decommissioning liabilities being fully funded… Hurricane, with our committed and capable team, is well placed to be able to create additional value for our shareholders.”

Risks

The main risk I see with Hurricane is the same that all smaller oil companies face, which is a sudden and/or sustained slump in the price of oil. Or even a crash.

For example, the pandemic and nationwide lockdowns caused a sharp decline in demand for oil and pushed refineries into production cuts. The price of oil collapsed, and at one point in 2020, a record 160 million barrels of excess oil were sitting in tankers around the world.

But oil demand rebounded strongly and Hurricane emerged in a relatively strong financial position. The problem is that nobody can predict what’s going to cause the next oil price crash and how long it will take to recover.

Safer options

Personally, I’d prefer one of the big players that has large cash reserves and can survive prolonged slumps in oil prices. Both BP and Shell, for example, look better options to me, with bucket loads of cash and assets.

These companies haven’t survived decades of tricky geopolitical situations and oil crises without being resilient. But needless to say, investing in such oil giants isn’t going to double my money overnight, like investing in Hurricane Energy could (in theory).

I’m looking elsewhere

However, beyond the safer oil giants, I do believe a better option for me could lie elsewhere. Jadestone Energy (LSE: JSE) is another small oil and gas producer, although focused on the Asia Pacific region. It has assets in Australia, Indonesia, Malaysia and Vietnam, but has been hit by operational problems in recent months. This has left the shares down 23% since January. But these issues should be transitory.

Jadestone Energy’s market cap is only £309m, just over double that of Hurricane’s. Its cash balance remains healthy and the company is also debt-free.

The risk with Jadestone is that operational problems may persist, eating away at its free cash flow at a time when oil prices are high. Still, I like Jadestone’s diversification of assets and the region it operates in, so I’m considering investing in the company over Hurricane Energy.

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Ben McPoland has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Manchester United (NYSE: MANU) Football Club has won more league titles than any other team in English football. In recent years, however, the club has struggled to live up to its glorious past, winning no trophies since 2017. So, how would I have fared if I’d bought £2,000 worth of Manchester United shares and held onto them for those five years?

A losing stock

A £2,000 investment in Manchester United stock half a decade ago (using the exchange rate at the time) would have bought me 145 shares. The price then was $18.25 per share. Today, one share is $13.06, which means I’d be nursing a 28% loss. My 145 shares would be worth just £1,630.

The stock would have paid me a small dividend along the way, but that would only have been a little over £100 in total. That still wouldn’t have brought me back to break-even. So, like the football team, this stock hasn’t been winning over the past five years.

Just for context, if I’d invested my £2,000 in an S&P 500 index fund instead, I’d have £2,833 today, without factoring in dividends. That’s because the 500 largest companies listed in the US are up a collective 50% in five years.

With a current market cap of $2.15bn, Manchester United is too small to be included in the S&P 500 index.

Financial performance

In its recent financial results for the 2022 fiscal year, the company reported that overall revenue was up 18% on the previous year at £583.2m. This reflected a return to full stadiums after two pandemic-hit seasons.

The club’s net debt, though, has increased by 22.7 %, from £419.5m to an eye-watering £514.9m. That rise is partly due to a “revolving credit facility” the club has used to offset the almost £200m lost during the pandemic. The annual operating loss was £87.4m.

On the field

The performance of Manchester United stock ultimately hinges on how the team does on the pitch. And the team hasn’t been doing that well since long-time manager Sir Alex Ferguson retired back in 2013.

Winning cup competitions means more games, which means more broadcasting and match day revenue. But after failing to qualify for the Champions League (the highest level of European football, both competitively and financially) last season, the club is today left competing in the less prestigious Europa League.

This would have almost unimaginable a decade ago, showing just how far the competitive standing of the club has fallen.

A change of ownership is likely

Malcolm Glazer acquired control of the club by buying out existing shareholders for around $790m in 2005. This ownership, however, has been unpopular with a large section of the club’s fans almost since day one.

Some recent reports suggest that the Glazer family might be finally ready to sell out. One rumoured buyer is Sir Jim Ratcliffe, Britain’s richest man and founder of chemical powerhouse Ineos Group. Were such a sale to be announced, I can imagine the shares would shoot much higher.

Still, the club’s £514m net debt, coupled with the team losing its top dog status on the pitch years ago, means I won’t be adding Manchester United shares to my portfolio. I’ll be watching this stock from the touchline.

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Ben McPoland has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

There are a handful of stocks in my portfolio that I just can’t imagine myself selling because I don’t think there are better alternatives out there to replace them with. At least not in the industries they operate in. Here are three companies that I’m not intending to part ways with.

A great British exporter

The first stock I don’t plan to sell is British spirits giant Diageo (LSE: DGE). The company has a portfolio of over 200 brands sold in 180 countries.

Diageo’s most popular brands

Most of these brands have a timeless quality to them, though, of course, the risk of a recession is looming. While this could hurt sales of alcohol, consumers tend not to cut back on their favourite tipple even during recessions. And I think as disposable incomes rise in South-East Asia and Latin America, demand for Diageo’s products will remain strong for decades.

The DNA age

Illumina (NASDAQ: ILMN) makes gene sequencing machines that enable customers to read and understand an organism’s DNA. The firm’s products played a crucial role during the pandemic, enabling scientists to identify novel coronavirus mutations, track transmission, and ultimately to develop vaccines.

The company commands 70% of the global DNA sequencing market. A very healthy 70% of its revenues are recurring, and its operating margins are around 20%.

This dominance, however, hasn’t gone unnoticed by regulators, and Illumina has been thwarted recently in its attempts to acquire competitors. The risk here is that if organic growth slows, it won’t be able to grow through acquisition.

Even so, with only 0.02% of humans sequenced today, Illumina has a gigantic runway of growth ahead of it. I believe we’re entering the DNA age and I intend to hold my shares over the long haul.

An ageing population

By 2050, the world’s population of people aged 60 years and older will double to 2.1bn. This trend towards an ageing global population is one of the reasons I own shares in Intuitive Surgical (NASDAQ:ISRG).

The company is the top dog in global surgical robotics, controlling around 80% of the market. Its flagship product is the da Vinci Surgical System, which surgeons use to perform an increasingly wide range of minimally invasive procedures.

Some of the benefits of robotic-assisted surgery for patients include less pain and blood loss, reduced risk of infection, and less scarring. Also, recovery times are quicker, saving health systems a fortune.

Today, over 10m procedures have been carried out on the company’s robotic-assisted devices, from an installed base of 7,364 systems. Once medical professionals are trained on these products, they’re unlikely to switch to a competitor.

The competitive advantage Intuitive Surgical now has over its rivals is enormous, but that doesn’t mean competitors couldn’t emerge one day with even better surgical systems.

Still, an ageing global population should drive demand for robotic surgery for decades. So I can’t see myself ever selling the shares. In fact, I’m thinking about buying more.

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Ben McPoland has positions in Diageo, Illumina, and Intuitive Surgical. The Motley Fool UK has recommended Diageo and Intuitive Surgical. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Meta Platforms (NASDAQ: META) reported its third-quarter earnings yesterday, and the market didn’t like what it saw one bit. Almost a quarter of the company’s value evaporated in just one trading session. Meta stock is now down a whopping 70% year-to-date.

Is this sell-off an opportunity for me to buy?

A numbers problem

The company reported adjusted earnings of $1.64 a share on revenue of $27.7bn. This was below analysts’ expectations. More worryingly, net income fell to $4.4bn from $9.19bn a year earlier.

Investors aren’t convinced by the company’s pivot to the metaverse, a move which lost it $10bn in 2021 alone. Its Reality Labs division, which its VR headsets are part of, has now lost a further $9.4bn so far in 2022.

Revenue in this segment actually fell by almost half from last year to $285m. Meanwhile, the company anticipates Reality Labs operating losses in 2023 to “grow significantly year over year“.

Weakening demand for digital advertising is also hurting the company, though Alphabet also reported underwhelming earnings this week, suggesting an industry-wide slowdown in advertising.

One positive was that monthly active users on the group’s platforms increased 2% year on year to 2.96bn. So this is a company that still has massive scale. That will continue to be attractive to advertisers.

An innovation problem

For a long time, Facebook (as it was) was able to acquire competitors (Instagram in 2012, WhatsApp in 2014) or introduce similar innovations to those of its peers. For example, it unveiled its Stories feature in 2017, which included disappearing photos and videos, just like Snap‘s Snapchat.

Most recently, in 2020, it introduced Reels to Instagram, a feature allowing users to make short videos set to music. This is similar to TikTok.

Of course, within the world of business, it’s common for a company to recognise popular innovations and adopt and adapt them for itself. In fact, a company’s survival could literally depend on anticipating the ambitions of its rivals.

Video-rental giant Blockbuster, for example, had the chance to buy Netflix for $50m in 2000. If the deal had gone through, Netflix would have managed Blockbuster’s online business. Apparently the Blockbuster CEO struggled not to laugh at the offer and turned it down instantly, and the rest is history, as they say.

To its credit, Meta has not been so naive in recognising threats from competitors. But I do think the company’s lack of innovation in its main platforms is finally catching up with it in the shape of TikTok.

A TikTok problem

Just four years after launch, TikTok landed its billionth user in 2021. This was half the time it took Facebook or Instagram. That user figure is expected to reach 1.8bn by the end of this year. TikTok is the most lucrative platform in the world for in-app purchases.

ByteDance, the private Chinese parent company of TikTok, is now the world’s most highly-valued unicorn, at around $300bn. I always take private valuations with a pinch of salt, but it’s striking that this $300bn figure is now more than Meta’s market value after its recent collapse. TikTok is the most formidable competitor the company has ever faced.

All in all, I think there are better alternatives for my portfolio today than Meta stock.

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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. Ben McPoland has no position in any of the shares mentioned. The Motley Fool UK has recommended Alphabet (A shares) and Alphabet (C shares). Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

NIO (NYSE:NIO) stock had a dreadful start to the week, dropping 16% on Monday after investors pressed the sell button on US-listed Chinese stocks.

This was after President Xi Jinping won an historic third term as China’s leader over the weekend. He immediately called for regulation of wealth accumulation, singling out private capital in particular. Like clockwork, NIO stock was sold off in response.

Of course, all this is nothing new to investors in the electric vehicle (EV) company. Double-digit moves in the share price, one way or the other, have become routine. But I think the serious political risks now surrounding this growth stock just cannot be ignored any longer.

My own history with NIO stock

I first bought shares of NIO soon after it went public in 2018. Then, a few months later, the company’s cash balance dwindled seriously as it incinerated money in its pursuit of growth.

I waited patiently for news about the company recapitalising itself. But there was only silence from NIO’s investor relations department. Meanwhile, the stock price dipped as low as $1.50.

Reluctantly, I sold my shares and went away nursing my 50% or so loss. Then the company announced a bailout from a government-backed fund. The stock shot back up and I bought in again.

Fast-forward a couple of years, and US regulators once again announced that Chinese stocks listed in the United States were to be delisted if the companies did not comply with auditing requirements. I thought it unlikely that the government in Beijing would ever fully allow US auditing of Chinese companies.

I sold my shares again, though thankfully for a profit this time. My eventful history with NIO stock left me break-even, give or take.

The market opportunity remains enormous

The reason I invested (twice) in NIO was that my imagination was captured by the enormous growth potential of the industry the company was operating in. China has the largest and fastest-growing electric vehicle market in the world. Accelerated by supportive government subsidies and infrastructure, this EV market is only going to get much larger.

And NIO has certainly been capitalising on this opportunity. The company delivered a record 31,607 vehicles in the third quarter of this year, an increase of 29.3% year on year. It has expanded outside China to a number of EU countries, including Germany, Sweden, Denmark, and the Netherlands.

But various tensions between the US and China have overshadowed this operational progress. Some US military chiefs now believe China might invade Taiwan before 2024. If this occurs, I think US-listed Chinese stocks could totally collapse in much the same way Russian stocks did this year following the invasion of Ukraine.

No third time lucky

As a long-term investor, I like to repeatedly add to my holdings over time as my conviction in them grows. But I cannot risk adding new money into a stock I feel has the chance of being delisted.

I think NIO has the potential to become an exceptional company. But, as an investment, there are just too many political risks surrounding the stock for me to invest in it again.

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Ben McPoland has no position in any of the shares mentioned. The Motley Fool UK has recommended Tesla. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

After going public in 1999, World Wrestling Entertainment (NYSE: WWE) stock drifted lower over a number of years. However, more recently, things have been much more positive for those invested in WWE shares.

So, how would I have fared if I’d invested in the company 10 years ago?

The stock has been a smash hit

A £5,000 investment in 2012, adjusted for the exchange rate at the time, would have bought me around 980 shares at $8.13 each. Today, the WWE share price is $78.11, so those 980 shares would be worth approximately £67,700!

But that’s not all. The company pays a modest dividend too, which has been set at an annual rate of $0.48 per share for over a decade. This means that I would also have received over £4,000 in dividends on top of my gains.

Of course, it would have been fortunate that the value of my investment was stored in US dollars over the last decade, given the depreciation of pound sterling.

The company today

WWE broadcasts to more than 180 countries in 30 languages and its original programming is watched by approximately 11 million fans in the US every week. It has 91.5m subscribers to its YouTube channel, which is more than the UFC (mixed martial arts), NBA (basketball), and MLB (baseball) combined.

Management has been ruthlessly efficient at merchandising and licensing every aspect of the WWE franchise. The company has two weekly live programmes, Raw and SmackDown. It licenses these out to various streaming services and television networks around the world, such as Comcast, Disney, and Fox.

Revenue in the second quarter this year was $328.2m, an increase of 24% over last year. Operating Income was $69.3m, an increase of 50%.

During the first six months of this year, the company generated $413m through its licensing deals, which is about 80% of its total revenue. This is stable and growing recurring revenue, and probably explains the stock’s rise in value in recent years.

Leadership controversy

Vince McMahon was CEO of WWE for 40 years, during which time he outcompeted a collection of regionalised wrestling promotions to create a unified global enterprise.

He was the literal definition of a ‘hands-on’ leader, often appearing in the ring himself. Self-styled as ‘the boss’, he played a central part in the narratives and rivalries between the wrestlers. And fans loved it when he got his comeuppance between the ropes.

But McMahon stepped down this summer after allegations of misconduct. He still holds majority voting control though, and his daughter has taken over as co-CEO.

Should I buy the stock?

Critics argue that the company’s best days are behind it. But WWE has faced many dips in popularity over the decades, and has always managed to reinvent itself and attract new generations of fans.

It’s certainly a unique company, though I think it may already have picked much of the low-hanging fruit available in terms of growth. I don’t see the shares going up as much again over the next decade.

Plus, it now has a price-to-earnings (P/E) ratio of 30, which I feel is quite pricey in today’s jittery market. I think there are better alternatives for my portfolio.

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Ben McPoland has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Many of the popular shares of yesteryear have fallen spectacularly out of fashion with investors over the past few months. However, Deliveroo (LSE:ROO) is one growth stock that’s rarely been in fashion since its disastrous market debut in March 2021.

The meal delivery company’s stock plunged 26% on its first day of trading. At 84p, the shares are down an incredible 70% overall.

Here’s why I won’t be ordering Deliveroo shares today.

No moat

Warren Buffett likes his companies to have a wide moat around them, and he likes sharks in the moat. That is to say, he looks for industries with very high barriers to entry. That’s also what I look for in my investments. Good examples of wide-moat companies include Coca-Cola, Visa and ASML.

The problem for Deliveroo is that the barriers to entry in the food delivery industry are very low. A quick search shows me that, beyond Deliveroo, there’s also Uber, Just Eat, Getir, Foodhub, and many other smaller players.

Internationally, there are thousands of competitors. There’s nothing stopping some of these companies from expanding to the UK one day and attempting to steal Deliveroo’s customers with discounted offers.

This cut-throat competition probably explains the difficulty the company has had expanding internationally. It currently operates in 12 countries, but has just quit the Netherlands.

Unconvincing business model

I just don’t think Deliveroo’s business model is scalable beyond a certain point. Entering new markets costs a lot of money, and the company is now in cost-saving mode as it desperately attempts to prove to the market that it can become profitable.

In its latest quarterly report, Deliveroo has warned that full-year growth will be at the lower end of expectations. Gross transaction value (GTV) was up 8% in reported currency terms to roughly £1.7bn, which isn’t too bad. But it doesn’t expect to be generating any form of positive cash flow until the back end of 2023 or some time in 2024.

Limited pricing power

I also think there’ll be further regulation of the gig economy in the future, which probably won’t be beneficial to the company. If Deliveroo has to pay its drivers more, then it’ll have to pass on those additional costs to its customers.

I just don’t think that’s realistic, though, especially as we enter tougher economic times. Consumers will simply go to other (cheaper) platforms, drive to pick the food up themselves, or stop ordering takeaways altogether.

Could Deliveroo be acquired?

To be fair, Deliveroo does have some brand equity, given that it’s a household name in the UK. This recognisability could make it an acquisition target for a larger company wanting to enter the food delivery space.

The most likely candidate here would be Amazon, which already owns a 16% stake in Deliveroo. Obviously, any hint of Amazon buying the company would likely send the shares much higher.

Even so, I don’t invest in firms on the basis that they might be acquired. I invest in companies that I think have – or are building – durable competitive advantages. And to me, Deliveroo doesn’t have any of these yet. So I’m giving the shares a wide berth.

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John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Ben McPoland has positions in ASML Holding. The Motley Fool UK has recommended ASML Holding, Amazon, Deliveroo Holdings Plc, Just Eat Takeaway.com N.V., and Uber Technologies. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

It’s been a roller-coaster year for investors holding Woodbois (LSE:WBI) shares. The stock was trading at 4.40p per share at the turn of the year, before soaring to around 8p by early summer. Since then, the price has slowly deflated and today sits at 3.25p.

This week the sustainable timber company provided a positive trading update. Should I buy shares on the back of this news?

Buy because of business progress

Between July and September, Woodbois notched up record quarterly revenue of $5.8m. That’s up 29% over last year. This helped boost its nine-month revenues to $17.1m, a 35% increase over the equivalent period in 2021.

Sawmill production soared 78% from the 2021 quarterly average, hitting 6,032 cubic metres. Meanwhile, veneer output was up 45% on a comparable basis.

All this helped gross profit margins rise to 24% for the first nine months of 2022. This was partly due to a strong US dollar, which helped the company as it reports in US dollars while its costs are incurred in local currencies.

Woodbois is progressing towards achieving FSC certification for its forestry concessions and factories. FSC-certified wood means it is sourced from forests that are responsibly managed in the most environmentally sustainable way possible. This certification would the company’s increase markets, margins, and profitability. This process is now 62% complete.

Buy because of carbon offsets progress

Trees absorb carbon dioxide from the atmosphere. It’s a complicated business calculating exactly how much CO2 they capture, but forest concessions in Africa are very large. So there’s the potential to take out much more carbon than the company emits through its operations. This could allow the company to generate extra money by selling its carbon offsets in the voluntary market.

However, the firm is yet to receive certification and approval for its first project. Management noted: “Upon receiving any grant of land from the government we will immediately look to scale the pilot scheme, preferably with the financial support of one or more external funding partners”.

This reveals the company is yet to be granted land from the government of Gabon, while external funding will be needed to get the project off the ground.

So, I’m not expecting any revenue from this side of the business anytime soon. I do, however, think this part of the business will come to fruition (eventually), and that funding will be secured (from somewhere). Any progress here would likely send shares skyrocketing.

Sell because of the company’s poor track record

Woodbois is not a new company. Its shares have been listed on the stock market (in one form or another) for over a dozen years. In that time, they’re down 87%. Net debt now stands at $10.9m, while consistent profits are yet to materialise.

More worryingly for me, the number of Woodbois shares in existence has increased fivefold in the last three years. This has been necessary to raise fresh capital to fund operations, but it’s diluted the value of shares and made them less valuable.

I’m interested in the potential of the company’s carbon solutions division, but I’m still on the sidelines for now.

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Ben McPoland has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.