It’s not your granddad’s stock market. But one name that might ring a bell and has certainly had apes making noise over is Clover Health Investments (NASDAQ:CLOV). But is that enough for other investors to consider a purchase of CLOV stock?
Well, let’s take a look at CLOV stock both off and on the price chart, then offer a risk-adjusted determination designed to keep your portfolio looking healthier.
Picture a brick-and-mortar video game shop, and a theatre chain. I’m referring to GameStop (NYSE:GME) and AMC (NYSE:AMC), and this year’s crown jewels of what’s sometimes possible in a meme-stock crazed market overrun by Reddit’s bullish apes.
And for a very brief moment this summer, CLOV stock shared a bit in common with those stocks’ high-profile and prolific short squeezes which have given those companies unexpected second leases on life.
Maybe not entirely surprising, as with the legions of other stocks targeted by Redditors, a dramatic rally of more than 200% in less than three weeks for the next-gen Medicare provider also proved short-lived.
Bottom line, Reddit & Co.’s short-term trading scheme of cornering Clover Health’s heavy bearish short interest was also its undoing.
With the feverish strategy backed more by hashtags, gifs and social media bluster than anything sustainable, the over-the-top rally was no match for anxious profit-taking and more lethal exiting that followed by apes unwilling to hold the bag at any price.
Now, and after one much weaker college try at propelling bears out of their positions in August, shares of CLOV remain near their relative lows and within spitting distance of the stock’s all-time-lows as well.
And to be fair to Clover’s obviously more committed bearish population, that group of shorts may be onto something even more meaningful to their wallets.
Despite Clover’s institutional pedigree and the company’s noble aim to make some of the U.S. healthcare system a more productive and fair market for providers and its recipients, the path towards meeting those goals has meant ballooning and larger-than-expected losses. And that’s a problem.
As InvestorPlace’s Mark Hake notes, and a guy that knows his way around financial statements, that’s not good news anytime soon or at CLOV stock’s current valuation for investors.
However, it’s not all bearish of course. In walking the aisle, though, CLOV stock’s financial challenges aren’t without precedent.
Investors could look at Netflix (NASDAQ:NFLX) or Amazon (NASDAQ:AMZN) as those cutting-edge tech companies broke new ground. Both piled up losses as they successfully grew their businesses and prior to free cash flow (FCF) and profits being achieved.
Yet, despite those similarities and it’s “next-generation” cache, CLOV stock isn’t exactly a NFLX or AMZN stock either, right? Clover isn’t reinventing the wheel. It’s more or less using technology to add spokes. And all the while, alongside competition also vying to profit from a growing healthcare market.
CLOV Stock Weekly Price Chart
If the message sounds as though Clover is caught between a rock and a hard place, it’s not that dire. But CLOV stock is certainly not a buy-and-hold.
Right now, and as an investment, Clover Health has distanced itself from being a more interesting meme stock. That’s actually OK in my book. Worse, though, CLOV stock hasn’t shown itself to be an attractive, well-discounted growth play either.
Referring back to Mark’s analysis, he sees $6.81 as the most an investor might want to reasonably pay for Clover Health shares. But that’s without having any real margin of safety either.
Technically, the CLOV stock price chart largely agrees that something has to give first. And right now, that could be a failure of bear flag support before bullish investors step up to the plate.
At the moment shares of Clover are just breaking flag support for a second time following a failed mid-August breakdown attempt.
Moreover, with second entries often bearing the stronger spoils for investors and the bearish pattern complimented by a sickly stochastics, CLOV stock is primed for a lower valuation.
But how low can Clover Health go?
With an all-time low of $6.31, and Bollinger Band support near $5.00, I’d estimate a more calculated long position in CLOV stock reasonably has upwards of 20% and a modest margin of safety over Mark’s fair value calculation.
Closer to a test of $5, a CLOV stock purchase could save bullish investors about 37% compared to today’s price tag near $8. Now that’s safety for bulls.
And if you’re in it to win it as a bear, that’s also just what the doctor ordered for Clover Health.
On the date of publication, Chris Tyler 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.
Chris Tyler is a former floor-based, derivatives market maker on the American and Pacific exchanges. For additional market insights and related musings, follow Chris on Twitter @Options_CAT and StockTwits.