Here’s why the PolyNovo (ASX:PNV) share price is attracting increased short interest

PolyNovo has been under pressure since its CEO suddenly stepped down…

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The PolyNovo Ltd (ASX: PNV) share price has been under pressure in recent weeks. Since the beginning of November, the burns treatment specialist has fallen nearly 24% in value. Meanwhile, the overall healthcare sector has gained 1.4% during November.

Unfortunately for investors, a swift exit of the company’s managing director and CEO, Paul Brennan, threw a hefty dose of uncertainty into the mix. The sudden departure couldn’t come at a worse time with the business experiencing headwinds to its sales and product pipeline.

Unsurprisingly, market participants seeking to profit from the weakness have pounced on PolyNovo. In turn, the short interest for the company’s shares has surged.

How badly is the PolyNovo share price being shorted?

According to the latest ASIC short position report, it isn’t pretty for the PolyNovo share price. On 23 November 2021, 7.28% of the company’s shares on issue were reported as being short positions (betting the share price will fall). This represents a notable increase from the 6.06% short interest at the beginning of November.

However, the contrast in sentiment becomes even clearer when compared to the same time last year. On 23 November 2020, the short interest in PolyNovo amounted to 4.97%.

It appears market participants have only grown stronger in their conviction for a downwards movement in the PolyNovo share price. This is despite shares falling nearly 55% from the same time a year ago.

What about the numbers?

Those that are negative on the PolyNovo share price could be looking at the relatively rich valuation on the company.

Currently, the burns treatment company holds a market capitalisation of $960 million. Meanwhile, for the 12 months ending June 2021, PolyNovo reported revenue of $29.16 million. This reflects a price-to-sales (P/S) ratio of approximately 33 times.

For comparison, another ASX-listed healthcare company — Australian Clinical Labs Ltd (ASX: ACL) — has a P/S of approximately 1.3 times.

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Motley Fool contributor Mitchell Lawler has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of and has recommended POLYNOVO FPO. The Motley Fool Australia has recommended Australian Clinical Labs Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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