Clover Stock Has Slumped. Buy the Dip?

Clover Health stock has been struggling in the past few months. Shares have reached 80% lower since the early June peak as CLOV’s “meme” momentum faded.

Figure 1: Clover Health logo.

Now, CLOV has hit bottom as shares trade at all-time lows of less than $5. Below, we have listed a few questions that could help determine if now is the time to invest in the stock.

The success of Clover Assistant

AI software platform Clover Assistant is the key differentiator in Clover’s unique model, and it has nearly 100,000 lives under management. The platform was designed to help physicians improve their services and attract new members.

Clover’s business model is heavily dependent on the platform, but experts are skeptical as to whether it can deliver what it promises: ease of use for doctors and money saving opportunities for patients. Clover Assistant has grown 223% YOY and approximately 2,900 health care professionals used Clover Assistant in Q3, up 45% YOY.

Are bears right?

Known as the “king of SPACs,” Clover saw its stock price plummet earlier this year. The likely culprit: research firm Hindenburgshortedthe stock, claiming that the company was the target of an investigation for dubious sales practices.

After Hindenburg's bet, CLOV share price plunged 50% year-to-date by the end of May. At that point, the stock caught the attention of Wall Street Bets’ “apes” community and became a target of meme mania. Since early June, stocks spiked 190% but then fell around 80% to all-time lows.

Venture capitalist Chamath Palihapitiya, who helped Clover go public through SPAC,defended the company from the allegations. But at that point, it may have been too late: skepticism towards CLOV had spread wide and the stock became a short seller favorite.

Currently, short interest is a bit on the hot side: 12% of the float is currently shorted,according to Yahoo Finance. We like to think that anything above 10% is a bearish indicator and a potential short squeeze candidate.

CLOV’s path to profitability

Clover Health’s “meme” momentum driven by sheer buzz and enthusiasm seems to have lost steam as the main discussion boards “cooled down” on the name. Now, CLOV shares could trade more in line with business fundamentals.

In that regard, the company has been a strong revenue generator in a market with multi-billion dollar potential: Medicare Advantage. In Q3, Clover generated $472 million in revenues, up an astounding 153% YOY. However, the company is still far from being profitable. Full year 2021 adjusted EBITDA is expected to sit around negative $250 million and $230 million.

One key question is how long it may take for Clover to reach profits with the current business model. Another is whether the company will be able to expand outside its current territory. The answers to these questions will likely drive the stock’s performance in the foreseeable future.

Lastly, according to Wall Street experts, CLOV stock is undervalued at current levels. Despite the consensus rating on the stock leaning heavily towards cautious, average price target sits at $8.67, suggesting 76% upside potential from here.