As one of the more popular investment choices on tap, Clover Health (NASDAQ:CLOV) is not a company you want to have too strong of an opinion on. Since I like to keep my inbox relatively clean so I can rifle through my many obligations, I’m going to be quick. Most conservative investors will probably want to stay away from CLOV stock, but speculators may have a short-term trading opportunity.
For the risk averse, my InvestorPlace colleagues have done a tremendous job explaining the pertinent details that could negatively affect Clover Health.
Although I can’t say that I’ve read every article associated with CLOV stock, the one theme that stands out is the race of the fundamentals: can Clover look financially attractive enough in time to justify (and expand) its premium?
For that, you should consider IP.com contributor Tom Kerr’s analysis:
“As of the second quarter, the company had $630 million in cash and investments on the balance sheet. Total liabilities were $901 million against total assets of $1.2 billion. The net loss for the first 6 months of 2021 was approximately $366 million. If this carries on the remainder of year, half of Clover Health’s cash positions will be eaten away. There will almost certainly be a burn rate in 2022. How much, though, is hard to determine. The factors involved in such a complex, regulated, medically driven type business along with a relatively new business model makes accurate forecasts very difficult.”
Adding to the conundrum is that CLOV stock went public via a reverse merger with a special purpose acquisition company (SPAC). Though they were the toast of Wall Street about a year ago, SPACs have underperformed benchmark indices in the year-to-date.
Remember all the warnings about SPACs and their dilutive effect? Clover Health isn’t helping to rectify this reputation.
A Possible Technical Catalyst for CLOV Stock
If we’re going to go down the road of reputational damage, we can’t ignore Chamath Palihapitiya, the venture capitalist who brought Clover Health and other companies public via SPACs he sponsored.
In March, his dumping of Virgin Galactic (NYSE:SPCE) shares surely didn’t endear him to many retail investors. But the move also impugns CLOV stock and other SPACs, whether tied to Palihapitiya or not. As we move down the rabbit hole of shell companies, it’s beginning to look more like the house advantage to sponsors and insiders is far more skewed than initially thought.
However, on Oct. 8, Palihapitiya tweeted that the “Centers for Medicare and Medicaid Services upgraded its rating of Clover Health from 3 to 3.5 stars,” per a Benzinga report. Further, the venture capitalist stated that the upgrade “shows CLOVs ability to execute and validates their wide-open network approach to access a larger TAM [total available market] compared with narrow-network plans offered by competitors.”
Could this be the catalyst to drive CLOV stock higher? Again, for conservative investors, you’ll want to steer clear. But for speculators, the technical indicators do seem positive.
Yes, the price of CLOV stock jumped higher on the tweet but just as importantly, so did the volume. Since the Oct. 5 session, the acquisition volume has been steady, thereby indicating slowly emerging bullish interest. Then, when Palihapitiya’s tweet hit the blogosphere, shares swung northward.
Of course, no guarantee exists that bullish momentum will continue. But in broader context, the optimists seem to have a case. Between the Sep. 8 and Oct. 4 sessions, we saw a significant decline in market value. However, that price decline was tied to declining distribution (or selling) volume. Theoretically, this dynamic indicates that the weak hands of the market are getting flushed out, inviting future upside.
Don’t Go Too Nuts on This Trade
Now, there is a counterargument to the above point in that it’s reasonable to ask, how many weak hands are remaining in CLOV stock? It would appear that many who got burned buying shares in the double-digit range would have no real compulsion to trade Clover again.
So, if they got flushed out before, I’m not entirely sure who would be remaining to get flushed out for good. Unfortunately, you won’t know the answer until you know the answer.
At this point, all I can say is to perform your due diligence. If that means scouring the internet to find an article that tells you what you want to hear, that’s entirely your call. For most folks, I would imagine CLOV stock needs a lot more than a single item of positive news for them to feel comfortable.
On the date of publication, Josh Enomoto 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.
A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare.