The Woodbois Limited (LSE: WBI) share price is rising strongly. At 2.75p per share it’s currently 8% higher in Monday business.
Woodbois shares are charging right now. But as a potential investor I need to remember that volatility is common among penny stocks like this. Prices can fall as suddenly and as sharply as they rise.
So should I buy the timber titan today? Or does it carry too much risk?
The case for
The possibility of share price choppiness isn’t a dealbreaker when I buy shares. This is because I invest in companies with a view to holding them for the long term, perhaps a decade or more.
Over this sort of timeline, the impact of temporary volatility — whether caused by company, industry, or economic factors — on my returns can be greatly reduced or even eliminated.
As in other aspects of life, the cream rises to the top when it comes to investing. And I’m confident that the UK shares I buy will deliver big profits (and share price gains) over the long term.
In the case of Woodbois I’m quite confident of strong earnings growth as timber demand rapidly improves. In addition, its involvement in the carbon capture business adds an extra reason to be excited.
The case against
Having said that, long-term investors like me still need to be mindful of volatility when it comes to penny stocks.
I might buy Woodbois shares with a view to holding them for several years. I could even want to stay invested for the rest of my life.
However, I could find myself in a situation where I’m forced to sell them for reasons out of my control. Alternatively, I might find what I consider to be a better investment opportunity, and want to offload my penny stock holdings to get involved.
I could potentially hang onto them for the long term so I don’t make a loss. But I would lose the chance to latch onto that exciting investing opportunity.
I therefore could make a loss if I sell out in the short-to-medium term. There’s a chance I could end up selling them for a lot less than I bought them for.
The verdict
The question, of course, is whether Woodbois shares are worth me taking on this risk.
Like any investor, I don’t have a bottomless reserve of cash to draw upon. But with funds to invest I’d happily buy the timber producer today. This is because sales of its natural products looks set to soar.
Demand for timber is tipped to rocket as populations grow and global construction rates increase. Sales of wood-based products will also grow as builders shift towards more environmentally-friendly products.
Analysts think the global timber and wood product market will grow 35% between now and 2027 (to $844.3bn). And Woodbois, with its wood-producing assets in Gabon and Mozambique, could prove a lucrative investment on the back of this.
