Long-term investors and traders will view Clover Health (NASDAQ:CLOV) stock from fundamentally different perspectives. That’s because the company is fraught with volatility right now.
CLOV stock began trading in June 2020 following a SPAC deal with Social Capital Hedosophia II. Social Capital Hedosophia is a company headed by Chamath Palihapitiya, a notable figure in the world of SPACs. All six of the blank-check companies have lost more than the broader SPAC market.
But Clover Health’s issues extend beyond the business results of Palihapitiya. There was a short seller report from Hindenburg Research some months ago and a Department of Justice investigation weighing down the stock.
Short Squeeze
All of this has led to talk of a short squeeze occurring. Thus, Clover Health is a trader’s dream, but much less attractive to long-term investors due to its risk.
Indeed, Clover Health is popular on r/WallStreetBets and it is ticking some of the boxes required for a short squeeze to occur. So, for readers who may be interested in the very risky short squeeze world, how might such an occurrence be identified?
According to Scanz, a software for serious short sellers, there are three conditions which must be met. Those interested can read through the list, but the most often discussed condition is that of shares short as a percentage of float. If that percentage is greater than 10%, one of the prime conditions has been met. Clover Health’s short interest currently sits at 35% per the Wall Street Journal.
Financial Situation
Clover Health is scheduled to release Q1 earnings on May 17. So, we’ll get a fuller picture of its financial health then. Yet, we can look back to its March 1 release to review how well it is doing.
Investors who view Clover Health from the high level line items of revenue and net loss will get a mixed picture of the company. In the broadest sense, Clover Health saw some encouraging signs in 2020. Overall revenues increased 45.5%, from $462.3 million to $672.9 million.
The company’s net loss of $363.7 million in 2019 became a loss of $91.6 million. And while that is encouraging, the company had some particular trouble in the fourth quarter. Revenues in that quarter increased by 45%. That’s encouraging. However, those increased revenues led to net losses which increased by over 3%.
That could signal a shift in which the positive momentum in 2020 reverses. It is concerning to say the least. When earnings are released on May 17, investors will get a clearer picture.
Righting the Ship?
On April, 15, Clover Health announced that Demetrios Kouzoukas had joined its board of directors and audit committee. As the press release accompanying the announcement states:
For the last four years, until January 2021, Demetrios L. Kouzoukas served as the Director of the Center for Medicare and the Principal Deputy Administrator of the Centers for Medicare & Medicaid Services (CMS). In those roles, he oversaw all operations and policy development for the Medicare Fee-for-Service Program, and the Medicare Advantage and Medicare Prescription Drug Programs.
Clearly Clover Health is looking to improve its current issues with his hiring. This is pure conjecture, but perhaps Clover Health was forced to appoint Demetrios, a high-level government employee, as a condition of the DOJ inquiry. Regardless, it is a sign that changes are underway.
I believe investors should simply watch CLOV stock because it is simply too difficult to judge where it’s heading from here. Its May 17 will give investors a clearer basis for a decision. For traders, the decision is up to you.
On the date of publication, Alex Sirois did not have (either directly or indirectly) any positions in the securities mentioned in this article.
