The Woodbois (LSE: WBI) share price has fallen below 3.5p, even after the company posted record revenue in the third quarter.
If Woodbois was a buy at 5p, then surely it’s a better buy now, isn’t it? Well, that’s the big question. So let’s have a look at what the latest quarterly update says.
In the quarter ended 30 September, Woodbois hit a record quarterly revenue. At $5.8m, it came in 29% ahead of the $4.5m achieved in the same quarter of 2021. And for the nine months, there’s a 35% increase to $17.1m, from $12.7m in the same period last year. That’s another record.
So why the share price fall? It’s interesting to compare these latest revenue growth rates at the nine-month stage with half-year figures.
Revenue growth slowing?
In the first six months of 2022, revenue increased 38% compared to the same period of 2021. The 29% increase in the third quarter is quite a bit below that. And that suggests revenue growth might be slowing. At a time when revenue growth is all-important in the quest for first profits, that could well be a reason for some investors selling out.
The company did improve its gross margin to 24%, but that’s only from 23% in the first half. Statistically, it’s essentially static.
Liquidity
For a company at this stage in its development, having the liquidity to make it all the way to achieving profit and sustainable cash flow is key. At 30 September, Woodbois had a cash balance of $1.4m. That’s down from $2.1m at the end of the first half, at 30 June. If that rate of decline continues, there’ll be none left in another six months.
Woodbois reported working capital of $9.3m at the end of the half, which looks healthy. But two thirds of that is inventory. Bank loans and other borrowings amount to $12.3m, fractionally down from the halfway level of $12.4m.
Cost saving
I also read one statement that caused me some concern. The latest update said: “The group has reduced senior management head-count and costs, which will benefit Q4“.
I don’t know what’s behind that. But culling management to save costs is not what I’m used to seeing at dynamic growth companies.
And Woodbois did add: “Recently, given the rising likelihood of some pricing pressure however, it was felt prudent to reduce exposure to third party trading for Q4 2022 and focus on own-products”. The outlook is, as companies often describe it, uncertain.
Verdict
What’s my verdict? I still think this is a company that has a promising future. The sustainable hardwood proposition looks attractive. And if the carbon credits business takes off, I think there could be decent profits from it.
I just don’t see how it can happen without a lot more cash. And how much dilution current shareholders might face by the time Woodbois becomes profitable is a huge unknown. I expect further volatility.
Wait and see what the full year brings, I think.
The post As the Woodbois share price drops below 3.5p, is it time to buy? appeared first on The Motley Fool UK.
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Alan Oscroft 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.