Polarean Imaging (LSE: POLX) shares have been getting quite a bit of attention from investors recently. Last week for example, they were among the top 10 most bought shares on Hargreaves Lansdown’s investment platform.
Should I follow the crowd and buy the shares for my own portfolio? Let’s take a look at the investment case.
An introduction to Polarean Imaging
Polarean is a US-based company that operates in the medical imaging research space. As an innovative company, it’s focused on solutions that help with the diagnosis of lung disease.
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It specialises in the use of hyperpolarized xenon gas (129Xe) as an imaging agent. Its technology is designed to provide a novel, non-invasive approach to diagnostics and enable MRI systems to achieve an improved level of pulmonary function imaging.
Founded in 2016, Polarean listed on the London Stock Exchange’s Alternative Investment Market (AIM) in 2018 via an Initial Public Offering (IPO). Currently, it has a market-cap of around £120m, meaning it’s a small company.
The company is led by CEO Richard Hullihen, who has more than 30 years’ experience in the medical imaging industry.
Growth potential
Looking at Polarean Imaging today, there are a couple of things that stand out to me. The first is that in late December, the company’s key product, XENOVIEW, was approved by the US Food and Drug Administration (FDA).
XENOVIEW is designed for use with MRI systems for the evaluation of lung ventilation in adults and paediatric patients aged 12 years and older. It can provide pulmonologists, surgeons and other respiratory specialists with ventilation maps of patients’ lungs.
FDA approval is a huge achievement for the company. And it could lead to much higher revenues.
It’s worth noting that at present, the one broker covering the stock expects revenue to hit $9.8m in 2023 versus $1.5m in $2022. That’s a substantial increase.
The second thing that stands out to me is that there are some major name investors on board here. Currently, Amati Global Investors, Chelverton Asset Management (which has a great track record with UK growth stocks), and Aviva are some of the biggest shareholders.
This is all very encouraging and leads me to believe there could be significant investment potential here.
A speculative growth stock
Having said that, this stock is speculative in nature. Polarean is not expected to be profitable anytime soon. For 2023, the company is expected to post a net loss of $14.3m. Generally speaking, unprofitable companies are risky investments. One reason for this is that they are hard to value accurately.
Meanwhile, the company may need to raise capital at some point. Earlier in the year, management said the group had enough cash to last until 2024. However, it is burning through its cash pile. So I would not rule out a capital raising in the not-too-distant future. This could put pressure on the share price.
The size of the company also adds risk to the investment case. Typically, the share prices of companies this size are volatile in nature.
My move now
Given the lack of profits, I’m going to leave Polarean Imaging shares on my watchlist for now. The company does appear to have a lot going for it. However, right now, the shares are just a bit too speculative for my liking.
