Clover Health Stock Price Rises 22% – Time to Buy CLOV Stock?

Clover Health (CLOV) stock rose over 22% yesterday amid speculation of a short squeeze. What’s the forecast for CLOV stock and should you buy it in September 2021?

Clover Health went public through a reverse merger with Chamath Palihapitiya’s Social Capital Hedosophia Holdings III (IPOC). Palihapitiya, nicknamed “king of SPACs” (special purpose acquisition company) has also taken Virgin Galactic, Opendoor, and SoFi public. Meanwhile, Clover Health stock has traded weak after the merger and went below the IPO price of $10.

CLOV stock price action

CLOV is the only company that merged with a Palihapitiya SPAC that fell below the $10 price level after the merger. The stock went as low as $6.31 at one point in time after Hindenburg Research accused it of hiding material facts from investors.

Hindenburg claimed that Clover Health and “Palihapitiya, misled investors about critical aspects of Clover’s business in the run-up to the company’s SPAC go-public transaction.” It accused the company of not disclosing the DOJ (Department of Justice) investigation against it. Hindenburg also accused Clover Health’s subsidiary Seek Insurance of falsely claiming that it is independent.

The report also said, “Multiple former employees explained that much of Clover’s sales are fuelled by a major undisclosed relationship between Clover and an outside brokerage firm controlled by Clover’s Head of Sales, Hiram Bermudez.”

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Clover Health on Reddit

On its part, CLOV and Palihapitiya denied the allegations even as they admitted to the DOJ investigation. The company said that it did not disclose the investigation as it was not material.

Meanwhile, Reddit traders saw an opportunity in Clover Health stock, and frenzied buying by retail traders saw the stock price rising to a high of $28.85. However, as is the case with other Reddit stocks, CLOV stock crashed after the initial euphoria.

The stock is again getting popular on Reddit group WallStreetBets and traders are buying CLOV stock anticipating another short squeeze in the stock. The stock’s FINRA short volume ratio was almost 34% on 7 September according to the data from Fintel. The short volumes are high enough to trigger a squeeze.

Clover Health stock price forecast

According to the data from CNN Business, of the four analysts covering Clover Health stock, two each rate them as a hold and a sell. None of the analysts have a buy rating on the stock. Its median target price of $9.50 is a discount of 12%. The stock even trades 7.4% above the street high target price of $10.

Notably, several analysts had downgraded CLOV stock in the previous round of Reddit pumping. “After the recent spike in CLOV, we are downgrading [because] the company is now trading at a 70% premium to ALHC [its closest comparable stock] despite a similar growth profile and lower near term margin trajectory,” said Bank of America analyst Kevin Fischbeck.

Bank of America downgraded CLOV stock

He also expressed concern over the lower guidance for members. “To some degree, we think falling short on membership in a new government program is completely understandable given the number of moving pieces, but doing so the quarter after lowering the MA membership guide leaves us with low visibility into the outlook,” said Fischbeck in his note.

While companies have been giving rosy projections at the time of SPAC mergers, many have had to subsequently tone down the expectations. There are cases like Nikola and Lordstown where the companies are finding it hard to execute the production plans. There are also cases like Momentus where the SEC has accused the company of misleading investors about its capabilities.

JPMorgan has also downgraded Clover Health stock after the company lowered its guidance. “We think shares of other managed care companies offer a more balanced risk/reward profile with little visibility into near-term risks,” said JPMorgan Chase analyst Lisa Gill.

CLOV stock price technical analysis

After the recent spike, Clover Health stock has risen above the 50-day and 100-day SMA (simple moving average) which is a bullish sign. The MACD (moving average convergence divergence) also gives a buy signal. However, its 14-day RSI (relative strength index) of 68.7 signals that it is getting near the overbought zone. RSI values above 70 signal overbought positions while values below 30 signal oversold levels.

Clover Health stock price long-term forecast

CLOV expects US Medicare Advantage spending to more than double between 2019 to 2025, and reach $590 billion. The expected increase in Medicare Advantage is positive for companies like CLOV. At the time of the merger, CLOV had forecast revenues of $880 million for 2021 and $1.72 billion for 2023. The company has already lowered the revenue projection for 2021 to $810-$830 million.

The company is meanwhile posting losses and analysts expect it to post an EBITDA loss of $360 million in 2021 and $181 million in 2022. The stock is valued at an NTM (next-12 months) EV (enterprise value)-to-sales multiple of 2.3x. The multiples have averaged 4.4x since the company was listed and have ranged between 1.5x-9.7x.

Overall, Clover Health is a fast-growing company. There have been short-term hiccups and the stock has adjusted to them. However, the long-term growth trajectory for the company looks positive considering the rapidly growing Medicare Advantage spending in the US. CLOV looks like among the best health tech stocks to buy and hold for the long term.

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