Clover (NASDAQ:CLOV) stock is stuck in a dryer-like tumble of losses, stock declines and more losses. At this point, CLOV stock is well below the original $10 IPO price from its special purpose acquisition company (SPAC) merger at $8.09 as of May 11. The point is that until the Medicare Advantage startup gets scale to make profits, CLOV stock will roll around with no upward direction.
I have been saying the same thing about Clover Health in my past articles. So far I see nothing that will change my mind. However, since the end of March, CLOV stock has jumped about 6.6% from $7.56 per share, when it seemed to be at a trough.
Outlook and Guidance
But don’t expect to see the stock move dramatically up. Clover will release its earnings for the first quarter on May 17 and hopefully the company will provide a much more cheery outlook than the losses it produced last quarter.
But investors should focus on any changes to the guidance management already provided in their previous shareholder letter. For example, on page 13 of the letter on March 1, Clover estimates that its Advantage membership will grow 17% to 21% to 68,000 to 70,000 members by the end of 2021.
In addition, its own forecast is for revenues of $820 to $850 million for 2021, up 21.8% to 26.3% over the $672.9 million in sales during 2020. Therefore, when the Q1 numbers are released we want to see if the company seems to be on track to deliver an average of 24% year-over-year growth.
Keep in mind this sales growth won’t all happen during one quarter. The pace might accelerate during the year but Q1 should show a substantial growth rate, about 5.55% sequentially. That is the level at which, after compounding, the total year can show an average growth rate of 24% or so.
Anything short of that growth might imply that the company’s projections are overly optimistic. Vice versa if growth is much higher in Q1 than 24% year-over-year.
Clover Health’s Q4 revenue grew 45.6% year-over-year. If the Q1 results are close to this growth that will be nice, but Clover seems to be on a lower growth path given its 2021 guidance.
Where This Leaves CLOV Stock
Right now there are only three analysts that cover the stock. They are uniformly positive, with an average price target of over $12 per share.
That seems to be a reach at the present time. I suspect that if the Q1 numbers do not blow away expectations, there will be a reckoning. They will likely lower their targets, which are about 50% higher than the price today.
Given this outlook, most investors will want to wait to see not only how well the company performs with its Q1 figures, but also its guidance going forward. If one compares the numbers they provide either in their shareholder letter or the conference call, any changes can be seen. This might lead to a downgrading of the stock’s outlook both by analysts and interested investors.
Therefore, be careful with CLOV stock. It has set a very high bar for 2021. Right now, analysts seem to believe the company. For example, analysts estimate revenue will be $822 million in 2021 and $1.2 billion in 2022, according to Seeking Alpha.
That is great if the company can actually achieve these numbers. It puts CLOV stock on a multiple for 2021 of price-to-sales of 3.8 times and 2.6 times for 2022. But be careful. If the Q1 numbers don’t imply that the company is on a glide path to reach these goals, CLOV stock will be stuck. It will likely tumble around like in a dryer, up a little, down a little, until a clear trend is available with the company’s growth.
On the date of publication, Mark R. Hake did not hold a long or short position in any of the securities in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Mark Hake writes about personal finance on mrhake.medium.com and runs the Total Yield Value Guide which you can review here.