Reddit’s wallstreetbets users have turned their attention to US medical insurance technology group Clover Health (NASDAQ:CLOV) and while they hope to short squeeze yet another stock to irk large investment groups, several of them say this one’s rise is underpinned by strong fundamentals.
The interest in Clover by these Wall Street renegades followed a more than 20% fall in the stock price, prompted by a report from short seller Hindenburg Research, which warned that Clover was under investigation by the Department of Justice for its business practices.
Hoping for a repeat of the Game Stop (NYSE:GME) frenzy, Reddit users again banded together in an attempt to push this stock “to the moon”. Shares in Clover rose to an all-time high of $28.85, a near five-fold rise from a low earlier in the month of $6.31. Today, they are changing hands at $13.77.
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That Clover Health is a meme stock should give investors cause for concern as the sharp gains are rarely a reflection of underlying value. But Clover Health has ambitious plans. One Reddit user wrote: “If they manage to actually achieve what they set out to do it should be a very strong long play.”
Technology platform, direct contracting boost coverage
Part of Clover Health’s growth is attributed to its Clover Assistant platform, which collates data and makes it easier for physicians to access information about patients and for patients to be reimbursed. In 2020, it increased the number of patients covered by this platform by 43%.
Clover Health has also become one of Medicare’s direct contractors (a system designed to make Medicare more financially sustainable for taxpayers and improve health outcomes for beneficiaries) and announced earlier this month that it had secured two deals with in-home health care providers.
In its first quarter results, Clover Health said that its Clover Home Care programme had, excluding the impact of the pandemic, resulted in a reduction of hospitalisations by 17% and a reduction in monthly medical expenses per member of $325 since its inception in 2017.
One of the company’s goals now is to expand into other markets across America, leveraged by its technology and direct contracting. To help achieve this Clover Health has been hiring some heavyweights to its management team this year and now has an ex-Medicare director and ex GE (NYSE:GE) HR chief on board.
Analyst warns on company guidance
While Clover Health seems well placed to achieve more, analysts, while fairly unruffled by the Hindenburg report which has had little mention, are typically cautious on the stock because of its fundamentals and Bank of America analyst Kevin Fischbeck cut his rating after the company’s latest forecasts.
He downgraded the stock last Thursday to ‘underperform’ from ‘neutral’ and gave a target price of just $10, commenting that the stock was trading at a premium and that Clover Health had cut its membership and revenue forecasts.
In its latest results, Clover Health gave very detailed guidance, including a forecast for revenue this year of $810 million-$830 million. That falls far short of the forecast given shortly before the IPO by chief venture capital backer Chamath Palihapitiya for 2021 revenues of $880 million and for 2023 of $1.723 billion.
It’s inevitable that a company like Clover Health would be hit by what it described as “elevated COVID-related costs”. At this stage though, we would like to see the company rolling out its technology platform and direct contracting more widely before we would invest and we would urge investors to look beyond the meme hype.