When I last wrote about Clover Health (NASDAQ:CLOV), I went in-depth on how the company simply had not lived up to expectations. Since that article, CLOV stock’s price dropped from the $4 range to a low of $2. No doubt this drop was caused by the market dumping a lot of unprofitable high growth stocks.
There has been a shift in momentum in the last few weeks. CLOV stock had rallied strongly from its fourth-quarter (Q4) 2021 results to claw a lot of those losses back. I suspect that the move up could be due to short covering given the beating the stock took in recent weeks.
Not many analysts would consider Clover Health a buy at these levels. According to the website Tipranks, CLOV stock only had an average analyst price target of $4. This was based on the price targets of six Wall Street analysts and had a forecast range of $2.50 to $7. The potential upside from this target price is limited with the stock trading around $3.50.
CLOV Stock Downgraded
One of the more recent changes was by Credit Suisse (NYSE:CS). As opposed to just reading the headline, I believe it is important for investors to dig into the actual statement to see if anything was said between the lines. Credit Suisse downgraded CLOV stock from Neutral to Underperform. The investment bank cited the need for the company to once again raise capital to address its cash burn.
The most concerning aspect for me is that the bank prefers the large-cap names in this sub-industry. Their case for large-cap stocks is that investors should focus on “‘clear earnings power, a sustainable and workable business model, and a cash generating business.'”
This is mostly due to Clover Health’s stubbornly high medical loss ratio. The main thesis of Clover Health was that technology and artificial intelligence (AI) solutions should help bring down medical costs. This is not panning out as expected, either indicating a failure of technology or a lack of understanding of the industry. Essentially, what Credit Suisse could be signaling here is that Clover Health is not the disruptor we thought it was.
Costs Remain High
In the midst of the lowered price targets, Clover Health released its Q4 2021 earnings results. CLOV stock rallied sharply after the release, as much as 21% with above-average volume. Still, there are plenty of reasons to like these results.
The company grew revenues by 160% year-over-year from $166.2 million to $432 million. Lives under Clover Assistant Management, the company’s AI platform, was almost 130,000 for the year – more than double the previous year. In 2021, Medicare Advantage members whose doctors took advantage of Clover Assistant saw a cost reduction of more than 10%. Since its inception, Clover Assistant had made 1.7 million recommendations to physicians.
Despite the top-line growth in users and revenues Clover Health had in Q4 2021, its Medical Care Ratio remained stubbornly high. In Q4, the company had a Medical Care Ratio of 102.8%, which is an improvement over the 109.3% from the same time last year. In other words, for every $100 in revenue the company earns, it needs to spend $102 in medical services. This is apart from the actual cost to run the business. This caused the company to have a massive loss of $187.2 million in the quarter.
Your Takeaway on CLOV Stock
I am sure that there can be a bullish case made for CLOV stock. It fell significantly in price since last year when it was one of the special purpose acquisition company darlings. However, until Clover Health can get its medical cost ratio under control, it will always be a money-losing proposition.
I would wait on the sidelines when it comes to CLOV stock.
On the date of publication, Joseph Nograles 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.