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Polynovo shares climbed 42% higher in January. Should you buy?

The Polynovo Ltd (ASX: PNV) share price was the best performing S&P/ASX 200 (INDEXASX: XJO) stock in January after climbing 42.13% last month.

However, is the Aussie healthcare stock still in the buy basket after its recent capital gains?

Why Polynovo led the ASX 200 in January

Polynovo is a medical device company that specialises in the treatment of burns through its NovoSorb biodegradable temporising matrix (BTM) technology. The $1.85 billion group’s flagship product is a polymer that integrates with human skin to assist the healing process following severe burns or skin loss.

Polynovo shares jumped early in January after a strong sales update to the market. The Aussie medical group reported its first $2 million month in terms of sales. Unaudited revenue totalled $8.57 million for the half year ended 31 December 2019, up 129% on the previous year.

The growth from Polynovo shares has also been helped by further product testing and development.

The Aussie group’s NovoSorb BTM product has just been applied to its first two UK patients in a big step forward. One patient was treated for necrotising fasciitis in an English NHS hospital, whereas a second patient was treated for a scalp defect.

Shareholders have now seen a 366.70% share price increase since the start of 2019. The group’s market capitalisation has now swelled to $1.85 billion and PolyNovo has entrenched itself in the ASX 200.

Should you buy Polynovo shares?

There’s no doubt the recent share price growth has been impressive from Polynovo. However, you never want to buy into ASX shares that are overvalued.

I think the February earnings season could be a great barometer of where Polynovo shares are headed this year. If we see strong revenue and sales growth, the current $2.80 share price could be good value.

If Polynovo misses the market’s expectations, however, it could be a different story. Investors seem wary of overvalued assets around the world right now, which could see the group’s shares crash lower in February.

Polynovo could be the next CSL Limited (ASX: CSL) or see a similar slump to Nearmap Ltd (ASX: NEA). I’d be waiting to buy Polynovo shares once I’ve got a better view of its growth and earnings profile.

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Kenneth Hall has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of CSL Ltd. The Motley Fool Australia owns shares of and has recommended Nearmap Ltd. 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.

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