The SPAC is Reddit’s darling as retail investors find their next target, but is Clover Health a buy or just another meme stock?
The meme stock craze is only getting bigger. AMC, GameStop, Blackberry, and now new SPACs are getting caught up in the short-squeeze action.
On Monday, Clover Health (NASDAQ: CLOV) stock rose 32%. Shares were up as high as 83% today, before falling 30% just one hour later, after the stock emerged as the latest target for traders following r/WallStreetBets. Shares are being bought and sold for over $18 currently after only being valued at $7.64 at the end of May. A staggering 125 million shares were traded on Monday, 8x as many as on Friday.
What is Clover Health?
Clover Health was founded in 2013 and provides health insurance and Medicare plans. The firm made its market debut back in January by merging with a special-purpose acquisition company (SPAC) also referred to as black-check company.
Recently, the company’s share price has been put under pressure after Hindenburg Research released a report alleging that the company misled investors. Read more on the scandal here: Clover Health’s Stock Plummets Following Hindenburg Short-Seller Report
The firm claimed the allegations were false but since then SPACs have lost their popularity with investors over inflation concerns. Now, the stock has become a candidate for a short-squeeze. This happens when a stock has a high level of short interest (sellers betting on the stock to fall) and so if the stock rises dramatically, short-sellers have to buy back the stock to cover their positions, which accelerates the stock even further.
Is Clover Health a good investment?
The company’s first-quarter earnings weren’t good enough to stop short sellers betting against the stock. Clover Health posted record revenue of $200 million for Q1, up 21% year-over-year and announced that its new traditional Medicare insurance offering should reach between 70,000 to 100,000 members by the end of 2021.
The cause of the drop in its share price came earlier this year when the media reported that the medical insurance was under federal investigation for how it compensates physicians for using its software.
The main argument for Clover Health is its long-term potential and many experts predict the company will disrupt and improve the healthcare and insurance sector, which it definitely has the money to do.
However, with more than one-third of Clover Health shares being sold short, investors can expect further volatility as it’s now one of Reddits favourite meme stocks.
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