I am bullish on Clover Health Investments (NASDAQ:CLOV). It hits all the right beats in our current digital economy. A Medicare Advantage health insurance enterprise offers doctors and medical professionals data-driven solutions. CLOV stock has fallen close to 50% during the last three months.
CLOV stock traded close to $15 per share in early January, hit a wall, and then kept falling until May. By June the stock started to rebound thanks to Reddit’s masses. However, the sentiment is leveling off. As I write this, the Clover Health stock price sits at $3.97.
Keep in mind thaat Clover Health is a classic meme stock. But now that it has fallen from its astronomical heights, the time to buy is approaching. The company’s been on a roll lately, with revenue and member count increasing in 2021. Meanwhile, it has a lot of cash on its books. It recently announced a public offering of Class A common stock that will pull in $300 million of gross proceeds that Clover has earmarked for corporate purposes, among other things.
Absent an urgent need for cash, the decision to raise capital may irk investors. But this is a new company that is growing. It needs money to invest in operations and its product. It has enough cash to last for a year or two, depending on how fast expenses rise as the business grows. The end of Q3 saw CLOV with $588 million in its coffers. If you add the proceeds from the equity offering, they have an excellent cash position.
The company has made remarkable progress in recent months, setting them on a path toward profitability. If you look for a healthcare company with a bright future, CLOV stock is a great bet.
Q3 Earnings Show an Interesting Contrast
Revenues for the third quarter came in at $427 million, up 153% a year ago. Clover’s membership continues to grow fast, which will bring increased cost efficiencies and contribute significantly towards net earnings. This is one of the key factors that drives up their stock price — higher numbers mean better profitability.
However, the company is forecasting operating losses for its fiscal 2022. Investors who are patient and want to take on some risk will find CLOV stock interesting.
Medicare-focused health insurance is an investment that could provide investors with good return potential as the aging population faces high medical costs. The Medicare Advantage Insurance sector is on fire, with total market value expected to more than double $590 billion by 2025 from $270 billion.
The business model for CLOV is a bit quirky. But it’s effective in that customers stay loyal to the plan. Each package offers something different, and what works with one person may not work on another, making them difficult to switch.
The cost of healthcare can be confusing for people. It’s not just about how much you have to pay each year. But also when and which drugs are covered by your insurance plan? And what if there is more than one type or amount that applies in certain situations — do I need an appointment at the doctor’s office first before getting tested elsewhere (e.g., hospital)? Every enrollee should choose a plan that minimizes their total out-of-pocket costs according to personal healthcare needs. Hence, Clover Health offers an attractive value proposition.
AI Solution for the Future
With Clover Assistant, managers can provide high-tech AI software that increases patient care outcomes and reduces costs. The five-minute survey program collects data from patients for diagnostic tests, which is then analyzed by the artificial intelligence system to find possible illnesses or ailments.
Medical inflation is illegal, and the Department of Justice (DOJ) has investigated CLOV for it, as reported by Hindenburg Research earlier this year. However, the physicians allegedly involved are not employees of Clover.
Clover Assistant is a game-changer for CLOV. It has helped the company significantly increase its productivity and profitability by cutting down on tedious tasks, paperwork, or other administrative work that takes up so much of an employee’s day-to-day routine. The innovative software can help physicians identify potential health risks they might have overlooked, benefiting patients’ quality of life and increasing payments through risk adjustment.
CLOV Stock Remains High Risk
In a high-growth, competitive industry where many companies are vying for market share and consumers’ attention alike, there’s always a risk that you will struggle. But despite these risks, Clover has persevered — thanks in part to their innovative practices, which have drawn praise from experts across the country.
The DOJ launched an investigation into certain aspects of its operations. However, things don’t look too bad. Forecasts call for continued net losses through 2022, yet investors should remain as the company keeps finding ways to compete beyond things like price cuts or advertising campaigns.
The stock may yet again be on its way to new heights, as it has been for much of this year. This time around, investors should watch when Clover begins reporting some positive earnings quarters shortly — that could mean another boost ahead. However, this time, the rally will be sustainable.
On the publication date, Faizan Farooque 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.
Faizan Farooque is a contributing author for InvestorPlace.com and numerous other financial sites. Faizan has several years of experience in analyzing the stock market and was a former data journalist at S&P Global Market Intelligence. You can check out his analysis on InvestorPlace and TipRanks.