PolyNovo Limited (ASX:PNV), might not be a large cap stock, but it received a lot of attention from a substantial price increase on the ASX over the last few months. As a stock with high coverage by analysts, you could assume any recent changes in the company’s outlook is already priced into the stock. However, what if the stock is still a bargain? Let’s take a look at PolyNovo’s outlook and value based on the most recent financial data to see if the opportunity still exists.

View our latest analysis for PolyNovo

Is PolyNovo Still Cheap?

PolyNovo appears to be overvalued by 29% at the moment, based on my discounted cash flow valuation. The stock is currently priced at AU$2.44 on the market compared to my intrinsic value of A$1.89. Not the best news for investors looking to buy! But, is there another opportunity to buy low in the future? Given that PolyNovo’s share is fairly volatile (i.e. its price movements are magnified relative to the rest of the market) this could mean the price can sink lower, giving us another chance to buy in the future. This is based on its high beta, which is a good indicator for share price volatility.

What kind of growth will PolyNovo generate?

Investors looking for growth in their portfolio may want to consider the prospects of a company before buying its shares. Although value investors would argue that it’s the intrinsic value relative to the price that matter the most, a more compelling investment thesis would be high growth potential at a cheap price. However, with a negative profit growth of -6.7% expected next year, near-term growth certainly doesn’t appear to be a driver for a buy decision for PolyNovo. This certainty tips the risk-return scale towards higher risk.

What This Means For You

Are you a shareholder? If you believe PNV is currently trading above its value, selling high and buying it back up again when its price falls towards its real value can be profitable. Given the uncertainty from negative growth in the future, this could be the right time to de-risk your portfolio. But before you make this decision, take a look at whether its fundamentals have changed.

Are you a potential investor? If you’ve been keeping tabs on PNV for some time, now may not be the best time to enter into the stock. Price climbed passed its true value, in addition to a risky future outlook. However, there are also other important factors which we haven’t considered today, such as the financial strength of the company. Should the price fall in the future, will you be well-informed enough to buy?

So while earnings quality is important, it's equally important to consider the risks facing PolyNovo at this point in time. You'd be interested to know, that we found 1 warning sign for PolyNovo and you'll want to know about this.

If you are no longer interested in PolyNovo, you can use our free platform to see our list of over 50 other stocks with a high growth potential.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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