Could Polynovo shares get kicked out of the ASX 200?

Is Polynovo really in danger of getting kicked out of the ASX 200?

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Key points

  • ASX healthcare share Polynovo has had a rough time of it lately
  • The company is now down almost 40% in 2022 alone so far
  • But Polynovo could be about to get kicked out of the ASX 200 as well

What a time it has been for the Polynovo Ltd (ASX: PNV) share price lately. Polynovo shares are currently having a so-so day on the ASX boards today. The healthcare company is presently down 0.54% at 92 cents a share after earlier hitting an intraday high of 96.5 cents a share.

But zooming out, the picture looks a lot bleaker. This company is still down by a hefty 39.7% over 2022 alone. Since this time last year, the Polynovo share price has lost almost 70% of its value. And let’s not even discuss Polynovo’s all-time high near $4 a share that we saw back in December 2020.

Polynovo’s falls now put this company at a market capitalisation well under $1 billion. In fact, it is sitting at just over $608 million today. That puts Polynovo at serious risk of getting kicked out of the S&P/ASX 200 Index (ASX: XJO).

The ASX 200 is the flagship index of the Australian share market. But it only holds 200 of the largest ASX shares by market capitalisation. Thus, if Polynovo’s fortunes don’t improve significantly over the next month or so, the company could find itself well outside the ASX’s 200 largest companies and, thus, be excluded from the index when it is next rebalanced.

Could Polynovo shares be kicked out of the ASX 200?

This view was argued in a recent article in The Australian. According to the report, broker Wilsons is picking coal miner Coronado Global Resources Inc (ASX: CRN), lithium stock Core Lithium Ltd (ASX: CXO) and tech company Brainchip Holdings Ltd (ASX: BRN) as the next entrants into the ASX 200. That’s largely thanks to significant share price appreciation in recent months.

But if these ASX up-and-comers join the index, they will need to take the places of other ASX shares. Wilsons is, indeed, predicting that Polynovo could well be one of the losers, along with other shares like Tyro Payments Ltd (ASX: TYR) and Appen Ltd (ASX: APX).

Removal from an index like the ASX 200 has little effect on the company itself. However, it can result in share price selling pressure. Many ASX fund managers have mandates that dictate they can only hold ASX 200 shares. What’s more, any index funds that track the ASX 200 (of which there are many) would immediately sell out of a Polynovo position if the company was kicked out of the index. These two factors mean ASX 200 exclusion often results in selling pressure on a company’s share price.

Going off Polynovo’s recent share price performance, that’s probably the last thing investors need to hear right now. But such is ASX life.

Motley Fool contributor Sebastian Bowen has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended Appen Ltd, POLYNOVO FPO, and Tyro Payments. The Motley Fool Australia has recommended Tyro Payments. 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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