Hedge fund legend Stanley Druckenmiller claims stock prices in the market don’t reflect what’s happening now, but what might happen in 18 months. The market is forward-looking. If that’s true, then not much is expected to come of Woodbois (LSE: WBI) shares at today’s price of 2p.
But what about five years from now?
The bear case scenario: more dilution and no profits
Woodbois is still unprofitable, so it’s not a self-sustaining business. As a result, it has constantly needed fresh injections of capital to stay afloat.
Of course, there’s nothing inherently wrong with this. Issuing stock is a frequent move by companies as a means of raising capital through public markets.
But the rate at which the timber company has done this is alarming to me. The number of Woodbois shares in issue has multiplied more than fivefold in the last three years.
A rapidly rising share count makes it very hard for earnings per share (EPS) to grow along with net income. That’s because the earnings are spread more thinly across a lot more shares.
I think this stock dilution is a large part of why the shares are down 85% over the past five years.
Anyway, let’s fast-forward to 2027. I’ll assume Woodbois is still posting no real profits, its promising carbon credit division never got off the ground, and there was more dilution of shareholders along the way. In this scenario, I reckon the shares would be worth even less than they are today. Maybe less than 1p.
Alternatively, Woodbois could be acquired, or simply go bust if it continues to bleed money.
The bull case scenario: profits and carbon credit revenues
Another angle is that the company would be making some progress towards profitability, albeit slowly. After all, there was an operating profit of $15,000 for the first half of the year. This was on revenue of $11.3m, mind, and certainly didn’t cover the company’s cash outflow.
But let’s not beat around the bush here. I’m sure the bull case rests almost entirely upon what happens with the company’s fledgling carbon credit division.
The voluntary carbon market could be valued as highly $30bn in the coming decade, according to the company. This market allows carbon emitters to offset their emissions by purchasing carbon credits from greener companies, such as Woodbois (possibly).
If there’s genuine progress with the firm’s carbon offsetting operations, then there could be massive upside in the share price.
Of course, this is all hypothetical. Nobody really knows how things will pan out, least of all me. But I can imagine a bull case scenario in the share price, where single pennies become double-digit pennies again.
That being said, I think we’d need a change in market sentiment to support a sustained rally in the share price. And that seems a long way off, considering a global recession might be just around the corner.
I think the future lies somewhere in the middle for this growth stock. I expect to see some sort of progress on the company’s carbon credit operation, yet probably not skyrocketing revenue growth. But I also anticipate more stock dilution and lumpy growth along the way.
So I’m still not ready to buy Woodbois shares just yet.
The post How much could Woodbois shares be worth in 5 years? appeared first on The Motley Fool UK.
Ben McPoland 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.
Motley Fool UK 2022