Analysis: Is the Polynovo share price good value?

The Polynovo Ltd (ASX: PNV) share price jumped 8.1% higher last week but is the ASX biotech share a good value buy?

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The Polynovo Ltd (ASX: PNV) share price was a strong performer last week and closed the five days of trade 8.1% higher at $2.66 per share. At the time of writing on Monday, Polynovo shares had edged slightly lower to $2.64.

Shares in the Aussie biotech have consistently outperformed the S&P/ASX 200 Index (ASX: XJO) and continued to climb higher in 2020. So, how has this happened and is it sustainable?

What has happened in the last 12 months?

It's been a big start to the year for Polynovo and its investors. Despite slumping in the recent bear market, the Polynovo share price has surged back to life.

Strong sales have been a key factor behind the biotech company's share price growth. Polynovo's CSIRO-developed NovoSorb BTM product continues to kick goals in Australia and abroad.

In April, Polynovo announced the first use of its NovoSorb BTM product in Canada through Health Canada's Special Access Program (SAP). The company is working towards regulatory approval in 2021 which could open up another huge addressable market.

The successful news follows record monthly sales in the United States and an upward trajectory which has propelled the Polynovo share price higher.

What about the company's financials?

Interestingly enough, the company's half-year results in February didn't go down well with investors. In fact, the Polynovo share price fell 20% on the back of the 26 February results release.

The company reported an 80% increase in yearly revenue to $10.2 million with a 129% increase in NovoSorb BTM sales to $8.6 million. In some good news for growth investors, NovoSorb BTM sales more than tripled in January 2020 compared to January 2019 figures.

However, Polynovo reported a net loss after tax of $2.4 million in February. In my opinion, that in itself isn't a worry, particularly for an R&D heavy growth company like Polynovo.

What is the outlook for the Polynovo share price?

Clearly, the coronavirus pandemic has thrown a spanner in the works for predicting what will happen in FY21.

Polynovo management did say that NovoSorb BTM sales for FY20 should comfortably double FY19, but that was all pre-pandemic.

The company continues to invest heavily in R&D and sales are trending upward. I think there's really strong growth potential for the Polynovo share price in 2020 and beyond.

If the company can execute its plans in the lucrative hernia and breast augmentation and reconstruction industries, who knows just how high the Polynovo share price could climb.

Foolish takeaway

The Polynovo share price has been a consistent performer over the last 5 years. Of course, past performance isn't a reliable indicator of future performance.

However, it seems to me the company has a strong sales pipeline and clear room for growth in 2020. While Polynovo is a speculative buy and heavily dependent on future sales growth, the technical environment does look strong.

Ken Hall has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of POLYNOVO FPO. 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.

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