Has Clover Health Finally Bottomed Out?

CLOV stock - Has Clover Health Finally Bottomed Out?

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Clover Health Investment (NASDAQ:CLOV) stock has been topping the list of under-performing stocks. Although there wasn’t any negative news from the company, a short seller’s negative report sent the stock down. The report criticized the company’s software, Clover Assistant for containing old and irrelevant diagnosis. CLOV stock has so far tumbled down 80% in the last 10 months.

Management has been boasting their platform’s ability to enhance decision-making. The software utilizes artificial intelligence to make personalized recommendations on patient care.

The stock has been the target of short sellers. CLOV stock’s short ratio is at an elevated level, currently at 8.97% of the free float. Given a high short-interest ratio, I expect CLOV stock might be poised for a short-squeeze rally.

Other reason for the stock to rebound is based on its improving operational performance. I believe there could be potential for the stock to bounce back.

One important factor to consider is the company’s improving medical care ratio, which measures total medical claims incurred against premiums earned. In the fourth quarter of 2021, their medical care ratio was 102.8%, better than 109.3% in Q4, 2020. Management expects this ratio to ameliorate to the range of 95%-99% in FY 2022.

Although earnings missed analysts estimates, revenues exceeded expectations in all the last four quarters in FY 2021. Overall, top line doubled from the last year to $1.5 billion.

Further, management issued optimistic guidance for FY 2022. Revenues are likely to increase again in two-folds to the range of $3.0 billion to $3.4 billion in FY 2022. This growth is likely to be driven by a 26%-27% growth in Medicare Advantage membership, reaching an average of 84,000 to 85,000 members.

Demand for Clover’s direct contracting program is expected to be much stronger. The company expects the average number of directly contracted beneficiaries to be between 160,000 and 165,000 this year, up from 62,125 beneficiaries in FY 2021.

If the company is able to deliver as guided and sustain its growth momentum, CLOV stock is likely to trend higher.

Overall, I believe investment in CLOV stock is an attractive contrarian addition in a portfolio, especially given its oversold levels.

On the date of publication, Sakshi Agarwalla 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.

Sakshi Agarwalla has more than eight years of experience writing equity research reports and preparing financial models for companies across various industries, as well as writing newsletters and financial articles. Recently, she assisted her Fund manager in executing trades, preparing weekly, monthly NAVs and writing newsletters. She has a postgraduate degree in finance and has completed CFA.


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