Shares in medical device manufacturer Polynovo Ltd (ASX: PNV) have been on a bit of a rollercoaster recently and are down 20% in the last six weeks.
Polynovo’s shares reached a record high of over $4 late last year, giving it a market capitalisation of around $2.7 billion.
Today’s valuation puts it at a discount of 37% compared to these previous highs. Is there a potential investment case to be made?
Polynovo background
Polynovo was the result of a spin-off out of the CSIRO with research that dates back to 1988.
PolyNovo’s flagship product NovoSorb BTM is used for serious burns victims and helps regenerate human tissue where it has been severely damaged. BTM is currently approved in Australia under the Therapeutic Goods Administration, in the US under the Food and Drug Administration, and also in Europe.
It’s also working on products in other areas such as hernia treatments and breast reconstruction.
Recent performance
In February, Polynovo released its HY21 results which revealed the company’s sales efforts were being affected by COVID-19 due to limited access to hospitals and surgeons.
Management didn’t give any guidance due to the ongoing nature of COVID-19, but they’re expecting lumpy sales in the second half of the year.
No trading updates have been provided to the ASX since, so it’s hard to judge the current situation and the outlook for the company.
Still, it would seem that Chairman David Williams thought Polynovo’s shares were good value after the sell-off earlier this year. David bought two lots of shares soon after and increased his holdings by 400,000 shares.
My take
Being quite early on in the distribution of Novosorb, Polynovo’s share price has been largely driven recently by sentiment and various announcements revealing expansion details.
Given the market hasn’t heard anything for quite some time, it makes sense its shares have trended downwards recently.
Even after this recent dip, Polynovo’s market cap of $1.7 billion isn’t small by any means, which puts its shares on around 56x forward sales. It would be worth considering how much of this future growth has already been priced into its current valuation.
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