Based in Tennessee, next-generation Medicare Advantage insurer Clover Health (NASDAQ:CLOV) is on a mission to improve every life. Hopefully, that would include the shareholders, although CLOV stock admittedly hasn’t performed well over the past six months. Currently, the stock is down 65% for that period.
Granted, CLOV did generate plenty of buzz during the summer of 2021. Apparently, Reddit-using retail traders targeted Clover Health for a short squeeze. Some folks undoubtedly made money from that trade.
On the other hand, though, long-term CLOV shareholders are probably frustrated at the recent price decline. Can they count on a recovery in 2022?
I won’t sugarcoat Clover Health’s fiscal profile, which has both positive and negative data points. Still, there’s enough good news here to potentially tip the balance in favor of the bulls, sooner or later.
A Closer Look at CLOV Stock
Prior to the 2021 short squeeze, CLOV stock had all the hallmarks of a Reddit target. It had a low share price and a relatively low trading volume (prior to the squeeze). It was an ideal under-the-radar pick for social-media traders.
Really, there’s no other logical explanation as to why the stock rallied from below $8 to a high of nearly $29 in early June. It was either Reddit, or forget it.
However, Reddit-fueled rallies are notoriously short-lived in many instances. Thus, as it turned out, CLOV stock quickly sank back below $8 again — and then just kept on falling.
Fast-forward to early 2022 and the stock is trading slightly below $3. Consequently, momentum-focused traders might choose to steer clear of Clover Health.
On the other hand, contrarians and value hunters might see the glass as half-full here. Just maybe, there’s an irresistible bargain with CLOV stock. If the company can demonstrate its growth potential, that is.
A Great Start to the Year
The good news is that Clover Health has an exceptionally positive outlook for its business.
For context, Clover deploys technology (specifically, the Clover Assistant) to healthcare providers in order to enable physicians to offer better care to underserved patients (mostly seniors). Today, the Clover Assistant serves a sizable swath of populations across healthcare, including Medicare Advantage and Original Medicare patients.
In a press release, Clover Health announced that it expects the company’s total “Lives under Clover Management” (patients, presumably) to “grow nearly 60% to over 200,000 in 2022.” Not only that, but the company also disclosed that its early 2022 Medicare Advantage memberships grew by more than 25% compared to the comparable period at the beginning of 2021.
Finally, Clover Health began January 2022 already above its previously indicated 2022 average Medicare Advantage membership guidance of 82,000 lives. Clearly, this is all great news for CLOV stock
Trouble with the Financials
Given Clover’s membership growth, it’s tempting to assume that the company must be in perfect financial health. Yet, we shouldn’t jump to conclusions here. After all, it’s not unheard of for companies to have difficulty turning strong memberships and revenues into profits.
There is revenue growth here — no way to deny that. During the third quarter of 2021, Clover Health posted $203.7 million in revenue. That easily outdid the $167.1 million it reported in the prior-year quarter.
Here’s where it gets problematic, though. In Q3 2021, Clover Health managed to incur $576.4 million in operating expenses, including $436.4 million in net medical claims.
The end result for that quarter was a net earnings loss of $34.5 million. This is disappointing, considering the fact that Clover Health had a net earnings profit of $12.8 million in the year-earlier quarter.
Hence, in terms of its profitability (or lack thereof), Clover Health appears to be moving in the wrong direction. That’s the bad news for CLOV stock.
The Bottom Line on CLOV Stock
Today, you’ve been presented with the good, the bad and the downright ugly when it comes to Clover Health as an investable business.
With this company, the shareholders really ought to insist that it reduce operating expenses and work towards net profitability.
Still, Clover Health expanding its membership base is a positive point to consider. All in all, CLOV stock is cheap but risky. A small position could be an interesting all-or-nothing wager.
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On the date of publication, David Moadel did not hold (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.
David Moadel has provided compelling content – and crossed the occasional line – on behalf of Crush the Street, Market Realist, TalkMarkets, Finom Group, Benzinga, and (of course) InvestorPlace.com. He also serves as the chief analyst and market researcher for Portfolio Wealth Global and hosts the popular financial YouTube channel Looking at the Markets.