Shares in Clover Health have been plummeting over the past month following a scathing short report earlier in the year, but are they a buy?
Caught up in the haze of meme stock mania earlier this year, Clover Health (NASDAQ: CLOV) has been having a tough time of things recently. Its stock price was the subject of a scathing Hindenberg short-seller report and has fallen more than 30% in the past month, as of July 12.
But does this discount price make Clover Health stock a good buy right now?
The bull case for Clover Health
As the time fast approaches for Clover Health’s third-ever earnings call, which is tentatively set for August 11, its financials could be in a better place. However, that doesn’t mean that it’s without any positives.
In its most recent report, 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. Alongside this steady revenue growth, Clover’s cash, cash equivalents, and short-term investments totaled $683.6 million as of March 31, 2021.
Clover focuses primarily on the Medicare Advantage (MA) market and is actually the fastest-growing provider of this offering in the U.S. With this in mind, its recent growth looks set to continue after the company recently announced plans to provide MA plans to an additional 101 counties this year — almost doubling the current geographical footprint it holds.
Its core product has been successful so far, and with the potential to branch out into Medicare Direct Contracting as well as bring its MA services to cover the entire country of the U.S. and its circa 400 million inhabitants, there’s still plenty of room for growth in the long-term.
The bear case for Clover Health
There are a few worrying trends at Clover Health and not least the fact that it is not yet profitable — though that is almost a given among SPAC offerings in this market.
It is still suffering from the aftershock of the highly critical Hindenberg’s short-seller report. The report made allegations against the company ranging from kickbacks to marketing practices as well as undisclosed third-party deals. Most notably, Clover’s sales figures are allegedly misleading, with accusations that its Medicare-reliant revenue stream is under threat and that 68% of total sales come via an outside brokerage firm controlled by Clover’s Head of Sales, Hiram Bermudez. You can read more about this in the article below.
The firm claimed the allegations were false but since then SPACs have lost their popularity with investors over inflation concerns.
There is also the risk that this company will get caught up in further Reddit-induced short-squeezes, which cause massive volatility and can lead to overinflated valuations. While this is not currently happening, it has in the past, and Redditors are still chatting about the company on the infamous subreddit, r/WallStreetBets. Short-squeezing is a risky form of trading and is not conducive to a long-term, buy-and-hold strategy that we practice here at MyWallSt.
So, should I buy Clover Health stock?
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 (36% as of July 12) shares being sold short, investors can expect further volatility should it resume its previous position as one of Reddit’s favorite meme stocks. It is also worth keeping an eye on the Hindenberg accusations.
Ok, maybe a company with so many problems is just a tad too risky for you right now? Luckily, a MyWallSt subscription gives you access to over 100 market-beating stock picks and the research to back them up. Get your free trial now!
- When was Clover Health founded?
It was founded and launched in 2014.
- What is Clover Health’s market cap?
Clover Health’s market cap is around $3.8 billion, as of July 12, 2021.
- Is Clover Health profitable?
No. Clover Health is not yet profitable.
MyWallSt operates a full disclosure policy. MyWallSt staff currently holds long positions in companies mentioned above. Read our full disclosure policy here.