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Key points
- Polynovo is coming off a difficult year in 2021 where shares lost around 60% in value
- Shares have started the year well as investors respond positively to the company's 1H trading update
- From the report the company expects a 43% year on year gain in revenue by the first half
- Macquarie is bullish on Polynovo and the consensus price target from all analysts is $2.21 at the time of writing.
Shares in medical device company Polynovo Ltd (ASX: PNV) have started the year well and have climbed 2% since January 1.
The gains are a welcomed reversal for the long-term downtrend Polynovo has been trading in over the last 12 months.
For instance, in 2021 shareholders saw their holdings decline by approximately 60% in value, as investors continued unloading shares into the back end of the year.
Much of this downside was underpinned by COVID-19 lockdowns and the exit of its CEO back in November, news that mounted further selling pressure on the company's stock.
What's in store for Polynovo in 2022?
Sentiment appears to be evenly split amongst the analysts covering Polynovo in 2022. The team at Macquarie is bullish on the Polynovo share price, maintaining its outperform rating and $2.85 per share price target last week.
Even with the recent rally, this valuation still represents more than an 82% margin of safety for investors at the time of writing.
Macquarie likes the long-term growth prospects for Polynovo, particularly with respect to its NovoSorb segment.
NovoSorb is a "Biodegradable Temporizing Matrix" that may be used to temporarily close wounds and aid the body in generating new tissue.
It is indicated in the use of partial and full thickness wounds such as pressure ulcers, diabetic ulcers, surgical wounds, trauma wounds, burns and draining wounds.
Given that it is a "man made synthetic polymer", Polynovo says that its offering is superior to grafts etc that contain biological material because it dampens the likelihood of infection.
Now with recent successes in these markets, the company is seeking to widen its footprint into adjacent markets like hernia repair and breast augmentation.
The broker notes that, together, both of these avenues present a larger total addressable market (TAM) at $7.5 billion annually, and therefore more opportunities to drive revenue.
Wilsons has the Polynovo share price to perform in line with the market and remains neutral in its direction, valuing the company at $2 per share in doing so.
That sentiment is shared equally amongst both Evans and Partners and Ord Minnett, both of whom tip the Polynovo share price to remain flat and value the company at $1.70 apiece.
In fact, the consensus price target assigned to Polynovo at the time of writing is $2.21, implying around a 41% margin of safety should the bull thesis come to light.
Hence, investors should keep a close eye on movement around Polynovo's NovoSorb segment in 2022, according to these experts, and this could be a key catalyst for its share price this year.
In its recent 1H FY22 trading update, the company explained that it expects to recognise US sales of $14 million in 1H, bringing total first half revenue to $18 million – a 43% year on year growth.
Polynovo share price snapshot
It was a difficult period in the last 12 months for Polynovo shareholders. As mentioned earlier, shares lost more than half in value, meaning they now need to gain 100% from that point to 'breakeven' again.
Though, shares have rallied more than 11% in the past month, and have climbed over 9% in the last week of trading following the release of its 1H trading update.
