An investing lesson to heed following the recent Woodbois share-price rise

The Woodbois share price has spiked upwards in recent weeks, and that’s made many of us think about how high it might go. Here’s why I’d be cautious.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

A pastel colored growing graph with rising rocket.

Image source: Getty Images

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

If we believe one claim, the Woodbois share price is set to soar by 1,000%. Or is it 2,000%? Yes, that’s what one sharp-eyed The Motley Fool reader spotted last week.

It was a paid ad, in among the top search results on the company name. And it made both predictions at different points. What valuation techniques did the analyst use, and what figures did they offer to back up their bold assertions?

Well, actually, none. There was no real analysis, just the bare claims. “Trust me, I never go wrong, fill your boots.” It was that kind of stuff.

Should you invest £1,000 in Woodbois right now?

When investing expert Mark Rogers has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets. And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if Woodbois made the list?

See the 6 stocks

Diverse insights

Anyone offering actual stock recommendations in the UK needs to be properly regulated. And I didn’t need to check if this one is, as the kind of claims they made would never get past a regulator.

And that makes me want to stress an important point about our non-subscription content here at the Motley Fool. In it, we don’t make stock recommendations. Instead, we writers share our personal thoughts on shares in relation to our own investments and our own portfolios.

The Motley Fool approach to investing is based on doing our own thorough research. Part of that is absorbing the thoughts of other investors, for sure. As it says at the bottom of every one of our free articles: “Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.”

But buying on the back of a short article without doing the follow-up research? Well, that could be reckless.

Woodbois share price

But let’s get back to this 1,000% claim. It highlights for me one of the biggest risks with penny shares. It’s the “pump and dump“.

Woodbois has a small number of major shareholders. That means the free float of shares, for private investors to buy and sell, is relatively small. And it makes it possible for someone with less than ideal scruples try to manipulate the Woodbois share price.

The approach is to buy some, and then try to pump it up by making outlandish claims of how it’s about to skyrocket to massive valuations. It then might only need a relatively small number of new investors getting in to push the share price higher.

Then comes the dump, which is just what it sounds. Sell the shares before the bubble bursts.

Penny stocks

Pump and dump really only works with small companies with limited numbers of shares freely trading, usually at penny stock prices. Imagine trying it with, say, BP on a market-cap of more than £80bn and huge numbers of shares traded every day. There’d be no chance.

No, it has to be something small. Ideally the shares will sell for just a few pennies, and there are far fewer daily trades.

So will the Woodbois share price climb further or fall? Or, more importantly, how can we get any idea? For me, it has to be about fundamental valuation, revenues and profits. And I want financial justifications for any predictions I see.

Then it’s a case of doing my own research and forming my own opinion.

But what does the head of The Motley Fool’s investing team think?

Should you invest £1,000 in Woodbois right now?

When investing expert Mark Rogers has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets.

And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if Woodbois made the list?

See the 6 stocks

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

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.

More on Investing Articles

Tesla building with tesla logo and two teslas in front
Investing Articles

Tesla stock is down. But it may be far from out!

Tesla stock has crashed this year but its long-term record of value creation is outstanding. So, could this be a…

Read more »

A young woman sitting on a couch looking at a book in a quiet library space.
Investing Articles

£3k in savings? That’s plenty to start buying shares and earning passive income!

Christopher Ruane explores how a stock market newcomer could start buying shares with a few thousand pounds and an appetite…

Read more »

Young mixed-race couple sat on the beach looking out over the sea
Investing Articles

5 passive income techniques of stock market millionaires

Christopher Ruane details a handful of approaches many successful stock market investors use to grow their passive income streams.

Read more »

Aston Martin DBX - rear pic of trunk
Investing Articles

Down 42% in a year, here’s why Aston Martin shares could keep falling

Aston Martin shares have destroyed vast amounts of shareholder value since the company listed in 2018. Are they now a…

Read more »

One English pound placed on a graph to represent an economic down turn
Investing Articles

FTSE shares: a once in a blue moon chance to get rich?

Christopher Ruane explains why he thinks hunting for blue-chip FTSE bargains in the current market could help an investor build…

Read more »

Businessman hand stacking money coins with virtual percentage icons
Investing Articles

4 stocks Fools have bought for growth and dividends

Sometimes, an investor doesn’t have to make the choice between buying a growth stock or dividend shares! Some investments offer…

Read more »

Rolls-Royce's Pearl 10X engine series
Investing Articles

Is there no limit to how high Rolls-Royce shares might go?

Christopher Ruane sees some reasons Rolls-Royce shares could continue pushing upwards. But is he persuaded enough about the potential value…

Read more »

Businessman hand flipping wooden block cube from 2024 to 2025 on coins
Investing Articles

How much could £20k in a Stocks and Shares ISA be worth in 2030?

UK investors have enjoyed spectacular returns in their Stocks and Shares ISA's over the past five years. Would could the…

Read more »