Woodbois (LSE: WBI) shares have been getting plenty of attention recently. It seems a (paid-for) research article floating around online has generated a lot of interest in the AIM-listed small-cap stock.
I’m a fan of small-cap stocks because they can potentially deliver much higher returns than large-cap shares (albeit with a higher level of risk). Is Woodbois a stock I should buy for my portfolio though? Let’s discuss.
What does Woodbois do?
Before I get into the ‘bull’ versus the ‘bear’ case here, it’s worth providing a brief overview of the company.
Headquartered in Guernsey, Woodbois is focused on the production, processing, manufacture, and supply of sustainable softwood, hardwood, and related products throughout Africa and across the world. It’s also active in the carbon services space and is focused on implementing large-scale forest carbon initiatives to help mitigate climate change.
It’s worth noting that Woodbois is a very small company. At its current share price of 4.4p, its market capitalisation is around £94m.
The bull case
Looking at Woodbois from an investment perspective, there are certainly reasons to be bullish. For starters, the company has momentum at present. For the first half of 2022, for example, revenue jumped 38% year on year to $11.3m. And the group generated its first-ever operating profit. This was $15,000, compared to a loss of $0.7m in H1 2021.
Meanwhile, the business is expected to continue growing in the years ahead. At present, the one analyst covering the company has revenue forecasts of $27.5m for 2022 and $39.2m for 2023 (versus $17.5m posted for 2021).
If Woodbois can achieve these forecasts and deliver an increase in profitability, it could see its share price rise.
The bear case
There are quite a few risks to consider here though. One is that the company doesn’t have a long-term track record when it comes to profitability.
When I invest in small-cap AIM stocks, I usually go for companies that have already been profitable for several years and have demonstrated the ability to increase their profits over time. I’ve found that the share prices of these kinds of companies tend to be far less volatile than those of companies that have not made a lot of money in the past.
Another issue is that the company only had cash of $2.1m on its books at 30 June. This low cash balance means it may have to raise capital at some point via an equity raise. If it was to do an equity raise, the share price would most likely fall.
A third risk is that the company has operations in Mozambique. This adds uncertainty as this country can be a bit politically unstable at times.
Finally, there’s the fact that Woodbois has a market-cap of less than £100m. Generally speaking, the share prices of companies this size tend to be quite volatile.
Woodbois shares: my move now
Weighing everything up, I won’t be buying Woodbois shares for my portfolio right now. Ultimately, they’re a little too speculative for my liking.
All things considered, I think there are better stocks to buy for my portfolio today.
