At around $2.70 per share, Clover Health (NASDAQ:CLOV) stock remains in Wall Street’s bargain basement. The meme crowd that briefly sent Clover “to the moon” last summer has not returned for an encore.
But if you’re an investor who buys based on fundamentals rather than on Reddit threads, now may be the time to give this aspiring “disruptor” of the Medicare Advantage Plan business a closer look.
Based upon its latest quarterly numbers and guidance, the situation here may not be as dire as it once seemed.
That’s not to say it’s a smooth ride from here. Although Clover made some progress getting its costs under control, there’s still plenty of work to do before it fully gets out of the red. Between now and then, there’s a chance it may have to do another dilutive secondary offering, like the $300 million capital raise it completed in November. It may be awhile before CLOV stock lifts off again in a big way.
Still, if you keep in mind its risky nature (by keeping a position small), and have a long enough time horizon, this remains a moonshot wager worth making.
CLOV Stock and Recent Earnings
For the quarter ending Dec. 31, Clover Health reported $432.1 million in total revenue. This figure topped analyst estimates, calling for a top line of $408.1 million. For the full year, the insurtech company reported total revenue of $1.47 billion. That’s a 118.76% jump from its top line from 2020 ($672.9 million).
Operating losses in Q4 did run high, coming in at $186.8 million versus $67.2 million for the prior year’s quarter. The company also recorded a very heavy operating loss ($636.9 million) for the year. This may seem like cause for celebration. Yet within the earnings release, there were two bits of data that resulted in the market reacting positively to the news, sending CLOV stock higher.
First, although its Medicare Advantage medical cost ratio, or MCR (claims as a percentage of premiums) was still above 100% last quarter, this did come down year-over-year. It fell from 109.3% in the fourth quarter of 2020 to 102.8% in Q4 of 2021.
So, if this best case scenario plays out, how much higher could it go? I wouldn’t bank on a trip back to $15, $20 or even more per share. A partial recovery, perhaps to the price target set by analysts at Canaccord Genuity in a post-earnings research note ($7 per share), may be achievable. That would be nearly 180% above where it trades today.
Compared to the risk of another double-digit percentage decline, risk/return appears favorable.
Why Buy Now, While Hurdles Continue?
Admittedly, while the latest results show cost management issues aren’t getting worse for the company, it may be too early to say they’re getting better. You may think it’s hasty to dive into CLOV stock, with its path to profitability still murky. But this high level of uncertainty may be exactly why now’s the better time to make this a speculative buy.
At today’s prices, investors are still pricing this as if the company will fail to get its MCR to sustainable levels. It’s also pricing in another dilutive capital raise. However, these concerns, while valid, may be overly priced in at this point.
I wouldn’t hold my breath for positive earnings in 2022. Yet as revenue goes up, and MCR inches down, operating losses stand to narrow in the coming year. This in turn will reduce the risk it needs to do another dilutive capital raise.
With around $791 million in cash on hand, Clover may have more than enough in its coffers to finance further growth and sustain losses until it puts this key issue behind it.
Bottom Line on Clover Health
Its recent earnings report helps to bolster the case it’s a worthy bottom-fisher’s buy. That said, I’ll reiterate this is far from a slam-dunk opportunity. In hindsight, the drop in its MCR seen last quarter could end up just statistical noise. If MCR fails to drop below 100%, forget about a return to $7 per share. A move to sub-$1 per share prices will soon follow.
Nevertheless, unlike some other busted meme plays there’s more than hope and hype behind the bull case for it. If you’re a fan of comeback plays, keep CLOV stock on your watchlist.
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On the date of publication, Thomas Niel 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.