Penny shares have the potential to dramatically increase the wealth of investors in a way FTSE 100 giants can’t, at least over a short period of time. Today, I’m going to look at what could turn out to be one of the best stocks to buy from this part of the market in September.
The best penny share to buy now?
The company in question is medical imaging technology firm Polarean Imaging (LSE: POLX). Its non-invasive drug-device combination product helps clinicians diagnose lung disease. It also allows them to identify the best treatment for the patient and then regularly check in to see whether said treatment is working or not. As it sounds, this could be a big deal for pulmonary medicine.
Following two successful Phase III clinical trials, Polarean’s Xenon gas MRI now needs to be approved by the US Food and Drug Administration (FDA). Importantly, a response on this is expected by 5 October, hence why this penny share’s grabbing my attention now.
So it’s looking positive then?
Based on recent activity, Polarean seems to think so. In anticipation of good news, the company has already taken on sales and marketing staff for when the product is officially commercialised. This should allow it to hit the ground running if/when it gets the green light. The potential demand could be huge.
Polarean certainly isn’t short of backers either. It raised £27m earlier in the year from several UK and US institutional investors in an oversubscribed funding round. Specialist fund manager Amarti Global, for example, holds a little over 12% of the company which now commands a market capitalisation of £180m.
All this makes POLX potentially attractive, in my opinion. So what things do I need to be aware of?
No sure thing
Well, one thing to highlight is the superb performance of this penny share to date. It’s more than doubled in value over the last 12 months. Since coming to the market in March 2018, the stock’s up over 400%.
I doubt early holders will be complaining. Then again, it’s worth asking how much of Polarean’s potential is now priced in. After all, it barely makes any revenue and will still have zero profit following approval. Adoption by hospitals will take time. Having come so far in so little time, one might wonder whether a ‘thumbs up’ from the FDA might be actually greeted with a shrug of the shoulders by the market. The share price may even fall as profits are banked by short-term traders.
Of course, there’s always the potential that Polarean might not gain clearance from the FDA, due to safety concerns. Such a scenario might be unthinkable to those already holding. However, I’ve been burned on such decisions in the past. I’m wary of assuming anything’s in the bag.
Regardless of which direction POLX stock may go next month, I also need to remember that the company’s small-cap status (and therefore relative illiquidity) may exacerbate this move.
In sum, POLX strikes me as a potentially exciting investment to make in September (even though this alternative stock remains my favourite penny share). That said, its almost binary nature makes it one that I most definitely wouldn’t bet all my capital on.
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Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.