Clover Health (NASDAQ:CLOV) could have seen it coming. A downgrade by JPMorgan analyst Lisa Gill followed the health management company’s reduction in its guidance. The analyst cut her price target on CLOV stock to $9 a share from $15 and took her recommendation to “underweight.”
The downgrade came after the Franklin, Tennessee company “lowered most guidance metrics, including reducing the number of aligned beneficiaries under the direct contracting program in 2021 by 50%,” Gill wrote in a note to clients following the company’s first-quarter results.
“CLOV aims to use its proprietary Clover Assistant point-of-care physician clinical management software to simultaneously deliver superior member benefits and industry-leading profitability,” Gill wrote. “Whether this ‘thesis’ can prevail will face an extreme test as CLOV expands exponentially.”
It remains to be seen if the opinion of the highly ranked analyst will carry much weight with Reddit’s meme stock traders who’ve pushed the shares higher in recent weeks. Clover Health now has a market capitalization of more than $3.8 billion as a result. On June 9, CLOV stock saw an all-time high of $28.85 at the peak of its meme stock frenzy.
CLOV Stock Carries Too-High Fundamentals Risk
Initially founded in 2013, the company came public in January, after a reverse merger with Social Capital Hedosophia Holdings Corp III, a special purpose acquisition company (SPAC). Clover Health sells Medicare-backed insurance plans and uses its platform to collect and analyze health data.
In June, as the short-squeeze momentum spilled over to CLOV stock, the shares had a spectacular increase. The company currently still has over 36% of its float sold short. In other words, more volatility in the shares is to be expected.
Just yesterday, InvestorPlace contributor Tezcan Gecgil did a deep dive on Clover Health, coming to the conclusion that while the Reddit crowd could stoke the share price higher still, it carries too high of a risk in the business fundamentals.
“Clover Health is not yet profitable and does not have a competitive moat. So far, its growth rate has been subdued,” she wrote. “Buy-and hold investors who have a two- to three-year time horizon could regard a potential drop toward the $10 level or even below was a better entry point.”
On the date of publication, Robert Lakin 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 InvestorPlace.com Publishing Guidelines.
InvestorPlace contributor Robert Lakin is a veteran financial writer and editor, including previous stints with Bloomberg News and as a buyside equity research editor. His Substack newsletter, TLV Strategist, covers the Israel business scene.