Is Clover Health a good buy under $ 5?
Healthcare technology company Clover Health (CLOV) has been the subject of several investigations since it debuted on the stock exchange via a SPAC in January 2021. Its stock is currently trading below $ 5. So, is it wise to bet on the stock now based on the growing scope of the business? Let’s find out.
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Medicare Advantage Insurer Clover Health Investments, Corp. (CLOV), based in Franklin, Tennessee, debuted on the stock exchange on January 8, 2021, merging with ad hoc acquisition company Social Capital Hedosophia Holdings Corp. III. However, he was faced several controversies since. The stock jumped to its 52-week high of $ 28.85 on June 9, 2021, motivated by the interest of Redditors inside. However, it has since declined considerably.
The stock fell 40.8% of its price in the past month and 73.2% year-to-date to close yesterday’s trading session at $ 4.50, after hitting its low 52 weeks at $ 4.31.
On November 23, CLOV closed a public offering of shares that generated gross proceeds of approximately $ 300 million. The company is expected to use the proceeds for working capital and general business purposes. However, the offer could result in dilution of the shares. In addition, the CLOV reported losses in its last published quarter. Thus, its short-term outlook does not look very promising.
Here is what could influence the performance of CLOV in the coming months:
Growth in results does not translate into improved results
CLOV’s total revenue increased 3.6% sequentially to $ 427.16 million for its fiscal third quarter, ended September 30, 2021. Lives covered by Clover Assistant Management increased 223% year-on-year for reach around 94,000.
However, its non-GAAP operating expenses increased 60.8% year-on-year to $ 72.31 million. Its net loss amounted to $ 34.53 million, compared to $ 12.76 million in revenue in the previous year quarter. In addition, its Adjusted EBITDA was negative at $ 102.33 million, compared to $ 19.98 million in the prior year period.
Several law firms have launched investigations against CLOV regarding allegations that it breached its fiduciary obligations. On February 4, 2021, Hindenburg Research released a report revealing that the company’s business model and software offering “is under active investigation by the Department of Justice (DOJ), which is investigate at least 12 issues ranging from bribes and marketing practices to undisclosed third party agreements. This could harm the business of the company.
In terms of 12-month follow-up Gross margin, CLOV’s negative of 11.31% is lower than the industry average of 54.86%. The stock’s CAPEX / S of 0.05% over the last 12 months is 98.8% below the industry average of 3.93%. In addition, its 12-month negative EBIT margin and EBITDA margin are below industry averages of 2.32% and 5.77%, respectively.
POWR ratings reflect grim prospects
CLOV has an overall F score, which equates to a strong sale in our POWR odds system. POWR scores are calculated by considering 118 separate factors, each factor being weighted to an optimal degree.
Our proprietary scoring system also rates each stock against eight distinct categories. CLOV has a D rating for value, which is consistent with its P / forward of 5.67, which is 47.1% above the industry average 3.85x.
The stock has a D rating for growth and sentiment. This is in line with analysts’ expectations that its EPS will decline 46.2% year-on-year for the quarter ending March 31, 2022 and remain negative in fiscal years 2021 and 2022.
CLOV has an F rating for stability, conforming to its beta version 1.04.
CLOV is ranked last among 11 stocks in the Medical – Health insurance industry. Beyond what I stated above, we also gave the stock ratings for momentum and quality. Click on here to obtain all the CLOV dimensions.
CLOV has extended its reach. On September 22, the company announced that the Centers for Medicare and Medicaid Services (CMS) had approved the expansion of its service area to operate in 101 new counties. However, it incurred massive operating expenses and reported losses in the last quarter. In addition, its EPS should remain negative over the next few quarters. So better to avoid the stock now.
How does Clover Health (CLOV) compare to its peers?
While CLOV has an overall POWR rating of F, the following stocks in the same industry can be viewed, with an A (strong buy) rating: UnitedHealth Group Incorporated (A H), Anthem, Inc. (ANTM) and Molina Healthcare, Inc. (Ministry of Health).
CLOV shares fell $ 4.50 (-100.00%) in trading before market on Friday. Year-to-date, CLOV is down -72.99%, compared to a 24.02% increase in the benchmark S&P 500 over the same period.
About the Author: Manisha Chatterjee
Since she was young, Manisha has had a strong interest in the stock market. She majored in economics at university and has a passion for writing, which led to his career as a research analyst.