Clover Health (NASDAQ:CLOV) stock looks to be in bad shape in most respects. The Medicare Advantage insurance company has sloughed off a good portion of its market capitalization over the past two weeks. In fact, CLOV stock lost nearly 41% between mid-November and Dec. 1.
That puts potential investors in quite a conundrum. An investment in Clover Health can look appealing or like a no-go at the same time. Its fall into penny stock territory marks a dramatic drop from its prior highs, so investors need to seriously review CLOV stock before making any moves.
Consensus on Clover Health Says, ‘Maybe’
Any investor is going to at least consider the opinions of Wall Street when deciding whether to invest in a given stock. Generally, that means understanding how many buy and sell opinions there are, and at least noting target prices.
Indeed, if we take a cursory look at those, we see why CLOV stock is currently confusing. Analysts are not in favor of Clover Health at present. According to Yahoo! Finance, the five analysts with current coverage all have it rated a “hold” or lower. The fact that there are no “buy” ratings simply doesn’t bode well.
But the difficulty comes into play in their collective opinion of CLOV stock’s value. Their average target stock price sits at $8.20. That represents massive upside at its current price around $4.70. In other words, analysts suggest you shouldn’t buy Clover Health shares, but that it also has nearly 85% upside based on target prices. it’s quite a conundrum, to be sure.
My two cents — for what it’s worth — is that potential investors should steer clear of Clover Health right now. The fundamentals point to a company that continues to move in the wrong direction.
CLOV Stock Has a Fundamental Lack of Appeal
The idea that Clover Health is an attractive investment likely relies on the argument that its top line growth looks strong. Indeed, revenues have been growing.
Through the first nine months of 2021, Clover Health has seen revenues more than double. A year earlier, the firm posted $506.65 million in revenue. That more than doubled in the first nine months of 2021, reaching $1.04 billion.
Q3 looks even stronger by that measure. Quarterly revenues jumped 153% from $169 million to $427 million between 2020 and 2021.
But that’s the problem: Clover Health wants investors to give it the benefit of the doubt often given to growth companies. It doesn’t want investors to worry about anything but increasing revenues. That’s where we should take caution, though, because CLOV stock has big issues fundamentally — and one big problem is mounting losses.
Alarming Losses at Clover Health
Investors should be aware that Clover Health has serious operational issues. Again, when comparing the first nine months of this year and last, a striking acceleration of losses is evident.
The $25.08 million operational loss Clover Health incurred through the first three quarters of 2020 probably wasn’t overly concerning at the time. As a growth company, investors were more willing to give the firm the benefit of the doubt.
But that loss multiplied by almost 18 times in 2021, reaching $450.2 million through Q3 of 2021. Right now, Clover Health looks to be on track to rack up roughly $150 million in operational losses each quarter.
The losses have to remain a major concern, as they’re well beyond what’s considered “normal” for a growth firm.
What to Do With CLOV Stock
It’s easy to look at the current price of CLOV stock and believe it represents some sort of undervalued buy-and-hold opportunity. But I think if you consider the fundamentals underpinning its recent decline, it deserves to be where it is.
Again, CLOV stock now sits in the penny stock realm. That’s a strong indication of its inherent risks.
Clover Health garnered market interest as a special purpose acquisition company (SPAC) entrant early this year. That gave it what now looks like unwarranted clout. It quickly declined in price, only spiking again on short-interest squeeze play momentum in June.
If you discount those catalysts, what you’re left with is a seriously flawed company whose stock you probably don’t want to mess with.
On Penny Stocks and Low-Volume Stocks: With only the rarest exceptions, InvestorPlace does not publish commentary about companies that have a market cap of less than $100 million or trade less than 100,000 shares each day. That’s because these “penny stocks” are frequently the playground for scam artists and market manipulators. If we ever do publish commentary on a low-volume stock that may be affected by our commentary, we demand that InvestorPlace.com’s writers disclose this fact and warn readers of the risks.
On the date of publication, Alex Sirois 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.
Alex Sirois is a freelance contributor to InvestorPlace whose personal stock investing style is focused on long-term, buy-and-hold, wealth-building stock picks. Having worked in several industries from e-commerce to translation to education and utilizing his MBA from George Washington University, he brings a diverse set of skills through which he filters his writing.