Is the Juice Worth the Squeeze in Clover Health Investments Stock?


Clover Health Investments (NASDAQ:CLOV) is one of the most-speculated stocks in the r/WallStreetBets subreddit forum. When I wrote about Clover Health just a few weeks ago, I mentioned that CLOV stock looked to be setting up for a short squeeze. Today, that appears to be more likely.

CLOV stock: stethoscope laying atop medical papers
Source: Shutterstock

The question is not really if you should buy? That depends on your investing style. Rather I see it as a question of what should you expect?

At one point in June, CLOV stock soared to a closing price of $22.15 a share. If you bought in at that level, you’re currently holding a heavy bag. I don’t have a crystal ball, so I can’t tell you how high it could go. But I can understand if you’re hoping for a short squeeze to recoup your investment.

However, as an investor who tends to look at things with a longer time horizon, I’m inclined to think that a short squeeze runs the risk of papering over the obstacles that Clover Health needs to overcome. In fact, I stand by my opinion that CLOV stock holds more appeal as a penny stock.

Tech Play or Insurance Play? 

The name hints that CLOV stock is a health insurance provider. For its part, Clover says it’s a technology company that’s attempting to carve out a niche in what is likely to remain a growing market. The company’s core solution is the Clover Assistant, an AI software platform that is designed to help physicians by reducing “variability in critical decision-making.” 

The problem with its ethos to “reduce variability in critical decision-making” is that in many cases, particularly as Americans age, variability is simply part of the process. In fact, it’s variability that is responsible for much of the tension between insurance companies and physicians. Healthcare outcomes don’t always fit neatly into a software program. 

But beyond that, as I’ve written before, Clover Health bulls believe the Clover Assistant is a better mousetrap. Yet, that doesn’t seem to be the case. It’s a different mousetrap, for sure. But it’s not necessarily better.

However, there are other concerns. As I wrote in a previous article, “Medicare Advantage plans operate within a strict regulatory framework that places a limit on out-of-pocket costs in addition to capping service fees.” 

This is creating a situation where the company is adding customers but continues to lose money. And they’re not necessarily outselling the competition either. The company has over 100,000 customers. However, it took them 10 years to get there. Other competitors have gotten much higher numbers, much faster.

Short Interest Remains High 

The most updated reading I’ve seen on short interest in CLOV stock puts it at 18.88%. And that’s with short interest decreasing by 11 percentage points in the past month. As it stands now, it almost doesn’t matter what the reason is for the high short interest. The new normal tells us that heavy short interest has become part of a new investing strategy. In this case, it’s about generating enough share price appreciation to cause bears to close their positions. 

And has been the case with stocks such as GameStop (NYSE:GME) and AMC Entertainment (NYSE:AMC) that can lead to spectacular gains in a short period of time. That’s why I called it an investing strategy. I could call it gambling; but many forms of gambling have a strategy behind it. 

Is CLOV Stock a New Cryptocurrency? 

I can respect the strategy. But as I’ve written about other “casino stocks,” the bigger question is what’s the end game? For many AMC or GME diamond hands, they are still holding shares of stock that are worth far more than anything resembling the intrinsic value of those companies. Of course then I realize that some of these investors may be sitting on a hefty loss depending on when they bought their shares. 

Which got me thinking that CLOV stock, like other meme stocks, are resembling some cryptocurrencies which have valuations that are akin to “because we said so.” If investors aren’t going to use their profits from CLOV stock as a medium of exchange, what’s the point?

And that’s why I believe most investors should stay away from CLOV stock. 

On the date of publication, Chris Markoch 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.

Chris Markoch is a freelance financial copywriter who has been covering the market for seven years. He has been writing for InvestorPlace since 2019.

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