Polynovo (ASX:PNV) share price melts 31% in 2 weeks. What’s going on?

Investors have punished the company this year. Or are they just taking risk off the table?

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Key points

  • The Polynovo share price has slipped more than 30% in the past 2 weeks
  • Pressure has been on for the last 12 months, with shares collapsing around 53% in that time
  • Consensus price target on Polynovo is $2.21

After a brilliant start to the year, the Polynovo Ltd (ASX: PNV) share price has slipped more than 30% in the past 2 weeks and now trades near its 52-week lows.

At the time of writing, shares in the medical device company are down less than 2%, trading at $1.24. This comes after it finished the day down more than 7% in the red on Tuesday.

Let’s take a closer look at the performance of the Polynovo share price recently.

What’s going on with the Polynovo share price?

Scoping out a wider time frame, it’s abundantly clear the selling pressure is in lock-step with the long-term downtrend Polynovo has been trading in over the last 12 months.

In that time, shares have collapsed almost 53% and have slid 19% in the last month alone.

But the market activity has been nothing short of bizarre over the last few weeks. Shares exploded vertically on the release of Polynovo’s second quarter and 1H trading update on 11 January, reaching a peak of $1.83.

In its update, the company forecasts US sales of $14 million in the first half, bringing total revenue to $18 million – a 43% year on year growth.

However, within two days following the release, shares had reverted back down towards the mean, and the slide has continued into the open today – with no obvious explanation. There was massive trading volume in Polynovo shares in the days after its update, signalling a potential large sell order executing in that time.

Although, shares in the medical device player are trading down alongside the wider sector, with the S&P/ASX 200 Health Care Index (XHJ) also plunging approximately 12% this year to date.

Not to mention, the benchmark S&P/ASX 200 Index (ASX: XJO) is also down circa 6% since January 1 as well, amid a market-wide selloff in risk assets such as stocks this year.

Hence, Polynovo is underperforming both benchmarks substantially this year to date, as investors seek to reshuffle capital into the more secure pockets of the market. The chart below shows this relative performance since July 2021.

TradingView Chart

In fact, Polynovo is now trading well below its consensus price target of $2.21 – a 42% discount to its implied fair value.

Sentiment isn’t all that gloomy, however. The team at Macquarie like the long-term growth prospects for Polynovo, especially in regards to its NovoSorb segment.

The company wants to expand into adjacent markets like hernia repair and breast augmentation in order to widen its product offering, especially given the high application to these markets.

Macquarie is constructive on this move and notes this gives Polynovo a total addressable market (TAM) at $7.5 billion per annum – a hefty chunk of market pie to bite into.

Analysts at the firm value Polynovo at $2.85 per share, implying a 126% margin of safety at the time of writing, a substantial growth prospect if the broker’s thesis plays out.

Although, the selling pressure continues en masse this last week. Three trades have surpassed over 100,000 shares per order, and the value of shares traded is well north of $25 million.

Polynovo share price snapshot

In the past month, Polynovo shares have slipped 20% and are now down 14% for the week as well. This year to date, investors have punished the company, with its share price collapsing more than 18% in that time.

Should you invest $1,000 in Polynovo right now?

Before you consider Polynovo, you'll want to hear this.

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The online investing service he’s run for over a decade, Motley Fool Share Advisor, has provided thousands of paying members with stock picks that have doubled, tripled or even more.* And right now, Scott thinks there are 5 stocks that are better buys.

*Returns as of January 13th 2022

Motley Fool contributor Zach Bristow has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns and has recommended POLYNOVO FPO. The Motley Fool Australia has no position in any of the stocks mentioned. 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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