The ASX's next major growth stock

Finally, the second main area that we're seeing value at the moment is low P/E companies. And by low PE companies, we still want those that are growing at a decent clip, but for whatever reason the market has them trading on a low P/E ratio. 

If we look again across the market, low P/E stocks are trading at a significant discount to the 20-year average relative to the rest of the market. So again, over time we think that that discount to the long-term average will mean revert and the value will play out for investors.

Also, it's a psychology-type of thing where people like to keep their large, what they perceive to be quality businesses and cast aside anything that might be small or illiquid or perceived to be risky. So I think there's been an overreaction to a degree on those smaller caps and some of those mid-caps as well have been cast aside even though their earnings and revenue profile looks very good.

But we also look at the larger part of the Australian market and we don't find it that compelling. The reality is the earnings growth within that part of the market has been fairly subdued for a number of years now. You look at the large banks, for instance, earnings growth has been very anaemic, and dividends per share have fallen over the last couple of years for some of the banks.

And then you look at the miners as well. The miners have had a decent run. The likes of BHP Group (ASX: BHP) and Rio Tinto (ASX: RIO) have held up very well. But on a longer-term basis, we look at the China story and we've come to the belief that China has probably reached peak consumption in a lot of commodities such as coal and iron ore for steel. So we're just a little bit more optimistic about other parts of the market, that being the mid and small caps, and trying to unearth the next emerging leaders that will come to the fore in the years and decades to come.

So there is obviously a high hurdle because there are over 2000 companies on the market. So you've got to filter it down and try and work out which businesses can deliver that strong, consistent earnings growth year upon year throughout the economic cycle and win market share. 

They're really usurping the traditional forms of treatments, which often involved using animal byproducts or animal skins, like pig skins, for instance. This is a new technology. The chances of infection or something going wrong are diminished. 

The business is growing revenues in the vicinity of 60%. They're really looking to bed down the US market where they've increased their sales team by 60 odd headcount. 

So they're investing in building up the sales team to now go out and commercialise this procedure, spread the word, build the narrative if you like. But then down the track, they've got the opportunity to expand into places like India, and then also look for other alternative uses of this technology as well.

So it's a very interesting business. They have reached an inflexion point, which we like to see, where they've turned EBITDA positive after years of making losses, and revenue growth is accelerating. So when you're seeing revenue growth accelerate, it's often a very exciting story. 

So that's one that we quite like at the moment, Polynovo.