With Clover Health (NASDAQ:CLOV) set to release earnings on May 9, should investors load up on CLOV stock? The answer is no. This is despite the fact that the Medicare Advantage insurer will more than triple its revenues on a year-over-year basis when the May 9 results are released.
That’s right, analyst projections are that Clover Health should report approximately $787.34 million in revenue in the first quarter (Q1) of this year. The firm reported $200.3 million in revenue only a year earlier. That might raise the eyebrows of growth investors who care little for losses instead fixating on top-line growth.
But the truth is that CLOV stock has continued to decline in value despite top-line growth. It is really a product of the company failing to live up to its billing. The company promised to utilize artificial intelligence (AI) to improve costs and increase efficiency. The firm’s Lives under Clover Assistant Management AI platform has almost doubled its customer count since last year, but it isn’t resulting in increased efficiency.
That is measured by the firm’s Medical Care Ratio, which sat at 106% throughout 2021. What that means is that for every $100 the company earns in sales, it had to pay out $106 in medical services spending. So, although the company is expecting to triple or perhaps quadruple its revenues in Q1, investors should be extremely wary.
On May 9, investors should seek first to understand what Clover Health’s Medical Care Ratio is. Net loss will also be very important. Revenue is a less important consideration. The mark of a successful business is not how much revenue it makes, but how much profit it can ultimately keep. Clover Health is still young, so I’m not implying that it needs to show profitability. But it is heading in the opposite direction. That’s why investors should not jump in before May 9 on the hope that Clover Health has righted its ship.
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.
