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Is the PolyNovo share price in the buy zone?

Nikhil Gangaram
health medical

The PolyNovo Ltd (ASX: PNV) share price closed yesterday’s trading session more than 8% higher. Although there was no direct catalyst to prompt the share price move, it could be an indication of continued interest in the company.

What does PolyNovo do?

PolyNovo is an Australian-based medical technology company that designs, develops and manufactures dermal regeneration solutions. The company is based around CSIRO medical technology developed following the Bali bombings as an alternative to animal-based products.

PolyNovo’s flagship NovoSorb Biodegradeable Temporising Matrix (BTM) product is a biodegradable polyurethane-based polymer that helps the body use its own systems to repair damaged tissue. NovoSorb acts as a dermal scaffold and is then broken down into carbon dioxide and lactic acid, which is excreted through urine. NovoSorb’s cutting-edge technology was displayed recently during theWhite Island volcano tragedy in New Zealand.  

NovoSorb is currently marketed in Australia, New Zealand and the US, with PolyNovo recently obtaining licencing approval for the UK and the European Union.

How did PolyNovo perform in 2019?

The PolyNovo share price surged in 2019, closing more than 230% higher for the year and hitting all-time highs. PolyNovo also reported strong full-year earnings for FY19, with the company reporting a revenue increase of 128% from the previous year of $13.68 million. Revenue growth was fuelled by a 435% increase in sales revenue of NovoSorb, which clocked in at $9.3 million for the year.  

PolyNovo was awarded for its stellar performance with the company being an addition to the S&P/ASX 200 (INDEXASX: XJO) in the September quarterly rebalance. Inclusion in the ASX 200 opens additional avenues of growth for the PolyNovo share price as index funds look to get involved.

Should you buy?

I don’t usually advocate buying shares in a company that has experienced a meteoric rise like PolyNovo. However, the growth prospects are tremendous for the company. PolyNovo is well positioned in key markets, especially the US with rapid expansion of its sales team. In addition, licencing approval for access to addressable markets in the UK and European Union offers excellent growth potential. This potential was reflected at the PolyNovo AGM late last year, when the company’s management informed shareholders that its was on track to double sales revenue for NovoSorb in FY20.

PolyNovo’s addition to the ASX 200 provides the company with favourable exposure to index funds and larger institutional investors. The company is also in the process of developing a variety of products that address hernia’s, breast reconstruction and various other skin technologies.

I think that PolyNovo is an exciting company with excellent growth prospects. A prudent strategy would be to keep PolyNovo on a watchlist and wait for positive price action before making an investment decision.

Another ASX-listed skin specialist to add to your watchlist is Avita Medical Limited (ASX: AVH), which was co-founded by plastic surgeon and former Australian of the Year, Dr Fiona Wood AM, who is also director of the Royal Perth Hospital burns unit and the Western Australia Burns Service.

The post Is the PolyNovo share price in the buy zone? appeared first on Motley Fool Australia.

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Motley Fool contributor Nikhil Gangaram has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

The Motley Fool's purpose is to help the world invest, better. Click here now for your free subscription to Take Stock, The Motley Fool's free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson. 2020