PolyNovo shares tumble as Morningstar says stock 'overvalued'
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The news: Shares in medical devices manufacturer PolyNovo were down nearly 15% after morning trade as Morningstar called the stock "materially overvalued".
The numbers: PolyNovo shares were down 14.7% to $1.52 at midday AEDT.
After market close on Monday, PolyNovo reported a 23.9% rise in first-half net profit to $3.3 million, and a 28.1% increase in sales. Revenue came in at $59.9 million, up 22.8%.
Morningstar maintained its fair value estimate of $1.15 per share and left its long-term estimates broadly unchanged.
However, the research house trimmed its FY25 revenue forecast by 6% due to a weaker US dollar and declining non-US sales in the first-half period. Its EBIT forecast for FY25 also decreased by 9% to $13 million, with the first half having generated $6 million.
The context: Morningstar equity analyst Shane Ponraj said he expects PolyNovo — which produces products that help manage acute complex wounds — to deliver a stronger second half, driven by favourable currency movements overall, as well as market share gains.
He also expects its new product NovoSorb MTX to increase penetration within existing hospital accounts, given its broader application in treating wounds. MTX contributed $2 million in sales in the first half, or 4% of group sales, after launching in the US in fourth quarter.
However, Ponraj flagged that PolyNovo shares are "materially overvalued".
What they said: "We suspect the market is too optimistic on the speed and magnitude of Polynovo’s commercial rollout and the research and development spending required to stay competitive in the long term," he said.
"The burns market has many competing products, and management highlights the importance of continuing to invest in R&D to future-proof the business.
"Further, group profitability is likely to be diluted as lower-margin developing markets grow as a proportion of revenue."
The sources: Morningstar research, ASX announcement
