Clover Health Investments (NASDAQ:CLOV) started life as a public company in early January, following a reverse-merger with the Chamath Palihapitiya-backed Social Capital Hedosophia Holdings Corp III, a special purpose acquisition company (SPAC). However, in a matter of months CLOV stock has fallen from a high of $17.45 to the current price of about $9.
In fact, on March 5, Clover Health shares hit an all-time low of $6.31.
The group operates in the Medicare advantage insurance market and sells Medicare-backed insurance plans. It was was founded in 2013.
In the early days of this year, the company got positive attention as a potentially disruptive Medicare insurance technology company.
However, in February came a damaging report from activist short-seller Hindenburg Research. The report said in part, “Clover has not disclosed that its business model and its software offering, called the Clover Assistant, are under active investigation by the Department of Justice (DOJ).” The report led to a selloff in CLOV stock.
The U.S. Securities and Exchange Commission started an investigation. Meanwhile, Clover Health has denied the allegations. However, for retail investors, unless there is definite word from the SEC, it is hard to know the full truth as to the issues raised, including overcharging and payments.
Today’s article looks at what might be in store for CLOV stock for the rest of the year. It is still too early to say if it could recover from its downtrend. Therefore, if you are not yet a shareholder, you might want to wait for first-quarter results due on May 17. Let’s see why.
How Q4 Earnings Came
Clover Health announced its Q4 and full year financials at the beginning of March. Total revenue was $166.2 million, up 44% year-over-year (YoY). Despite the top-line growth, the company continued to record losses at the bottom line. Clover’s net loss was $81.6 million in the last quarter of 2020 versus $78.7 million loss in Q4 2019. Cash and equivalents totaled $151.1 million as of Dec. 31, 2020.
For 2021, management expects total revenue to be in the $820 million to $850 million band. Net loss is expected to be in the range of $210 million to $170 million. Bulls were happy to note Clover is growing fast. Said CEO Vivek Garipalli:
“By year end we had more than 58,000 members, reported over $670 million in total revenue and created our Direct Contracting entity, Clover Health Partners.”
At this point, most of Clover’s members are in New Jersey. The number of members is important for potential investors as the company gets paid per customer from the government. Whatever amount the company does not pay in insurance claims, it gets to keep.
Therefore, Clover Health has an interest in improving the health of its members so that costs can decrease. Management highlights the importance of “Clover Assistant,” its proprietary technology and software platform. The company provides the software to qualifying doctors in the network free of charge. Through Clover Assistant, Clover Health collects data which it analyzes with the aim of improving member behavior and health.
However, the scathing short-seller report was critical of this technology. It said, “Physicians are paid $200 per visit to use the software, twice the normal reimbursement rate for a Medicare visit. Doctors at key Clover providers described the software as “embarrassingly rudimentary,” “a waste of my time” and as just another administrative hassle to deal with.”
Needless to say, the alleged extra payment to doctors has become a debated aspect of Clover Assistant.
The Bottom Line on CLOV Stock
Short-seller reports are controversial. Although they can highlight points of concern, they do not always give the full picture accurately. At this point, there are many on either side of this fence. As a result, CLOV stock has become a momentum play for short-term traders.
Therefore, if you are not yet an investor in CLOV stock, a wait-and-see attitude, at least until the release of the Q1 report, might be more appropriate.
Medicare is an important and massive federal program. Our population is aging fast. Any company that can disrupt the insurance landscape with technology will become a winner. But at this point, Clover Health has a lot riding on software to give it a solid competitive moat.
If the Street gets clear evidence that the controversial short-seller report was unduly harsh, CLOV stock could easily go back to its previous glory. However, unless the allegations are fully put to rest, the stock cannot start a bull run.
On the date of publication, Tezcan Gecgil did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Tezcan Gecgil, Ph.D., has worked in investment management for over two decades in the U.S. and U.K. In addition to formal higher education in the field, she has also completed all three levels of the Chartered Market Technician (CMT) examination. Her passion is for options trading based on technical analysis of fundamentally strong companies. She especially enjoys setting up weekly covered calls for income generation.