Medicare Advantage Insurer Clover Health Investments, Corp. (CLOV), which is based in Franklin, Tenn., made its stock market debut on January 8, 2021, merging with a special purpose acquisition company Social Capital Hedosophia Holdings Corp. III. However, it has faced several controversies since. The stock surged in price to hit its 52-week high of $28.85 on June 9, 2021, driven by Redditors’ interest in it. However, it has since declined significantly.
The stock has lost 40.8% in price over the past month and 73.2% year-to-date to close yesterday’s trading session at $4.50, after hitting its 52-week low of $4.31.
On Nov. 23, CLOV closed a public offering of shares that generated roughly $300 million in gross proceeds. The company is expected to use the proceeds for working capital and general corporate purposes. However, the offering could lead to share dilution. In addition, the CLOV reported losses in its last reported quarter. So, its near-term prospects do not seem very promising.
Here is what could influence CLOV’s performance in the coming months:
Top Line Growth Doesn’t Translate into Bottom Line Improvement
CLOV’s total revenues increased 3.6% sequentially to $427.16 million for its fiscal third quarter, ended September 30, 2021. Lives covered by Clover Assistant Management grew 223% year-over-year to roughly 94,000.
However, its non-GAAP operating expenses increased 60.8% year-over-year to $72.31 million. Its net loss came in at $34.53 million compared to $12.76 million in income the prior-year quarter. Also, its adjusted EBITDA was negative $102.33 million compared to $19.98 million in the year-ago period.
Several law firms have launched investigations against CLOV regarding allegations that it breached its fiduciary duties. On February 4, 2021, Hindenburg Research issued a report revealing that the company’s business model and software offering “are under active investigation by the Department of Justice (DOJ), which is investigating at least 12 issues ranging from kickbacks to marketing practices to undisclosed third-party deals.” This could harm the company’s business.
In terms of trailing-12-month gross profit margin, CLOV’s negative 11.31% is lower than the 54.86% industry average. The stock’s 0.05% trailing-12-month CAPEX/S is 98.8% lower than the 3.93% industry average. Furthermore, its negative trailing-12-month EBIT margin and EBITDA margin are lower than the industry averages of 2.32% and 5.77%, respectively.
POWR Ratings Reflect Bleak Prospects
CLOV has an overall F rating, which equates to a Strong Sell in our POWR Ratings system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.
Our proprietary rating system also evaluates each stock based on eight distinct categories. CLOV has a D grade for Value, which is consistent with its 5.67 forward P/, which is 47.1% higher than the 3.85x industry average.
The stock has a D grade for Growth and Sentiment. This is in sync with analysts’ expectations that its EPS will decline 46.2% year-over-year for the quarter ending March 31, 2022 and remain negative in fiscal 2021 and 2022.
CLOV has an F grade for Stability, consistent with its 1.04 beta.
CLOV is ranked last among 11 stocks in the Medical – Health Insurance industry. Beyond what I have stated above, we have also given the stock grades for Momentum and Quality. Click here to get all the CLOV ratings.
CLOV has been expanding its reach. On September 22, the company announced that the Centers for Medicare and Medicaid Services (CMS) had approved its service area expansion to operate in 101 new counties. However, it has incurred massive operating expenses and reported losses in the last quarter. In addition, its EPS is expected to remain negative in the coming quarters. So, the stock is best avoided now.
How Does Clover Health (CLOV) Stack Up Against its Peers?
While CLOV has an overall POWR Rating of F, one could check out the following stocks within the same industry, with an A (Strong Buy) rating: UnitedHealth Group Incorporated (UNH), Anthem, Inc. (ANTM), and Molina Healthcare, Inc. (MOH).
CLOV shares fell $4.50 (-100.00%) in premarket trading Friday. Year-to-date, CLOV has declined -72.99%, versus a 24.02% rise in the benchmark S&P 500 index during the same period.