Woodbois (LSE: WBI) shares have been as high as 9.4p in 2022, and as low as 2.3p. As I write, they’re changing hands at 2.6p. Does that make Woodbois a buy now?
I’m looking at three things that could persuade me to buy Woodbois shares. But each of them is a bit double-edged.
Revenue growth
Woodbois is in its early operational stages in Gabon, but revenues are rising. For the first half of the year, revenue grew by 38%, to $11.3m.
Production of sawn timber and veneer products both increased, by 37% and 50%, respectively. And we saw the highest volumes shipped since the pandemic.
But how does that old investors’ saying go? “Turnover is vanity, profit is sanity, cash is reality.”
Revenue growth is needed, and what we’ve seen does look good. And Woodbois did record its first ever operating profit in the half. But it was tiny at just $15,000, and didn’t come close to the period’s cash outflow.
Seeing revenue rising like this is encouraging. But the big risk lies in the time it might take to reach sustainable positive cash flow, and what further funding that might need.
Valuation
The thing I most look at when I consider buying a stock is its valuation. I like to see quantifiable fundamental metrics, like price-to-earnings ratio, dividend yield, and things like that. With Woodbois now, that’s largely impossible.
The best I can come up with is a price-to-sales ratio (PSR). If I assume first-half revenue will double for the full year, to $22.6m, that gives me a PSR of three. I think that’s attractive, particularly for a company at an early stage in its progress.
If trends continue, we should see further revenue growth in the second half. And that would bring the PSR down below my current estimate. But there’s little else I can meaningfully measure.
Woodbois is a very difficult company to value right now, even with one estimated measure that looks positive.
Losing money
This one might seem a little facetious, but it’s a serious point. To buy Woodbois, or any other ‘jam tomorrow’ growth shares, I’d have to be prepared to lose my money. And I mean all of it.
If I picture a worst-case scenario, it would be Woodbois running out of cash and going bust. I don’t think that’s likely to happen, but it would mean a 100% loss, and I’d have to be prepared for it.
A less bad outcome might see Woodbois reaching sustainable profits, but needing huge new funding to get there. I might face massive dilution of my holding, and lose a large amount of my money. In fact, the number of shares in issue has already multiplied more than fivefold between 2019 and 2022.
To put it another way, to compensate for the risk of losing my investment I’d need to see a high probability of Woodbois turning into a multi-bagger. Right now, I’m not sufficiently confident of that. For me, the risk-to-reward ratio is too high. I’ll just keep watching.
The post 3 reasons to buy Woodbois shares today appeared first on The Motley Fool UK.
5 stocks for trying to build wealth after 50
Markets around the world are reeling from the current situation in Ukraine… and with so many great companies trading at what look to be ‘discount-bin“ prices, now could be the time for savvy investors to snap up some potential bargains.
But whether you’re a newbie investor or a seasoned pro, deciding which stocks to add to your shopping list can be a daunting prospect during such unprecedented times.
Fortunately, The Motley Fool UK analyst team have short-listed five companies that they believe STILL boast significant long-term growth prospects despite the global upheaval…
We’re sharing the names in a special FREE investing report that you can download today. We believe these stocks could be a great fit for any well-diversified portfolio with the goal of building wealth in your 50’s.
Claim your free copy now
setButtonColorDefaults(“#5FA85D”, ‘background’, ‘#5FA85D’);
setButtonColorDefaults(“#43A24A”, ‘border-color’, ‘#43A24A’);
setButtonColorDefaults(“#FFFFFF”, ‘color’, ‘#FFFFFF’);
})()
More reading
3 popular penny shares to buy in November?
With the Woodbois share price under 3p, would I be mad not to buy?
Woodbois shares are cheap. Should I buy them?
Where will the Woodbois share price go next?
Is it a good time to buy penny stock Woodbois?
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.