Clover Health Investments Will Likely Give Up More Ground Before It Approaches $10

When I got the call to write about Clover Health Investments (NASDAQ:CLOV) stock, I immediately went online to find an interesting angle.

a person holds up a scrap of paper that asks "Are you covered?"
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I came across a Reddit enthusiast who got taken to the cleaners by investing in the insurance technology company.

It seems a 17-year-old invested $5,000 in 2020 into a special purpose acquisition company (SPAC) and GameStop (NYSE:GME). Those funds ballooned into $35,000. In January 2021, he then rolled most of the funds into Clover Health. Call options. 

Dreaming of a $130,000 payday, his investment in Clover Health went the other way. However, the article seemed to suggest the 17-year-old investor hung on to his investment, hoping it would recover and grow.

“He’s [Chamath Palihapitiya] doing the best he can,” Business Insider reported the teenager told Bloomberg on May 13. “It’ll keep growing. I really think I’ll get a huge return.”

Not knowing the options he holds, I can’t speak to the investor’s specific situation.

However, I can say quite convincingly; I’ve got $35,000 reasons why not to buy CLOV stock. 

CLOV Stock Has Serious Resistance at $10

In early March, CLOV stock fell below $10 for the first time in 2021. Then, for a short duration, it battled back above $10. By the beginning of March, it had fallen below $7. 

It then recovered to a high of $11.77 by the end of April before falling once more below $7 in May. It likely will open this morning at about 9. So it seems obvious $10 provides significant upside resistance.

The last time I wrote about Clover Health was in early May before it reported its Q1 2021 results. At the time, I said that even though I personally wouldn’t buy CLOV stock, I thought the risk/reward proposition for speculative investors was pretty good at $9 and change.

Well, we’re still at $9 and change. What’s different? Not a whole lot. 

The Single Negative With Q1 2021 Earnings

Clover Health did report Q1 2021 results in mid-May. They were mixed with revenues of $200.3 million, above analyst expectations. However, the company also lost $48.4 million in the quarter, 71% higher than its loss in Q1 2020. 

I don’t think interested investors should be too concerned about the larger loss in the quarter. It is, after all, still scaling up its business. With $720 million in cash on its balance sheet, there’s no need to panic. There will be big losses for the next few quarters as it adds Medicare Advantage (MA) and Original Medicare customers.

It’s come a long way from 2016, when it had 15,000 MA members. By the end of March, its MA membership had increased to 66,348.

Further, as the company said in its Q1 2021 press release, it now has more than 130,000 Americans under its management. If I’m reading its press release correctly, Clover Health expects that number could hit 200,000 by the end of the year. 

The big negative with the first-quarter results is Clover Health’s medical care ratio or MCR. It was 107.6%. This means the company’s medical costs were higher than the premiums it received during the quarter. Put another way, for every dollar in premiums; it paid out $1.08 in medical costs. 

On the plus side, its normalized MCR was 95.4%. Lower is better. By comparison, UnitedHealth Group (NYSE:UNH), America’s largest healthcare insurance provider, had an MCR in the first quarter of 80.9%.

The Bottom Line

If you’ve got a case of FOMO (fear of missing out) because you missed buying CLOV stock in May when it was trading as low as $6.52, I do think you’ll get another chance. 

If you don’t want to miss out, I would buy a half position today and patiently wait to see if you can buy the other half somewhere in the $6s. 

But, as I said earlier, you’ll be going on this buying mission without me. It’s just too darn speculative for this old guy. 

On the date of publication, Will Ashworth did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the Publishing Guidelines.

Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia. At the time of this writing Will Ashworth did not hold a position in any of the aforementioned securities.


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