Clover Health’s stock (CLOV), has seen significant volatility since 2021. This stock hit a 52-week high at $28.85 per shares in June. Clover Health sold impressively, closing at $8 per share by mid-week.

Such volatile swings are indicative of the current market’s uncertain nature. CLOV stock is still one of the most highly speculative stocks in its peer group. Retail investor interest in this stock is still high, leading to some unusual swings other stocks do not typically experience.

Many investors see this stock as a candidate for a short-term squeeze. What is the reason? In a span of about one week, the stock plunged over 200%. This is before shares crashed back to Earth.

This stock could go on a second run. Will investors feel more pain? I am still not convinced by this stock.

(See Clover Health stock charts on TipRanks)

CLOV Stock could do it Again

There are certainly quite a few investors out there who remain bullish on Clover Health’s ability to squeeze once again. The reason for this is the high interest rate and high borrow fees rates, which are both higher than normal.

But, just because the stock is shorted heavily or not favored does not mean it will be successful. It is actually quite the contrary. Markets are usually an excellent pricing mechanism. Sometimes, the markets can get it wrong. Over the long term, however, the stock market can be a good indicator of companies’ value.

Clover Health’s share of the float is approximately 74%, however institutions and insiders own about 74%. It is possible to do anything if everybody sticks together, and keeps their diamond hands.

In the market, “smart” money in institutional money is often used. This is an indication that institutions hold large amounts of CLOV stock. It is also a company many smart investors believe in.

Investors who are excited about a new surge in CLOV stock must trade with caution. 

Mixed Quarterly Results 

Complicating matters for investors bullish on the ability of Clover Health to squeeze is the company’s financial results. Clover Health’s revenue growth was 140% in the last quarter. This is mainly due to its impressive performances in Medicare Advantage premiums, and direct contracting revenues.

Clover Health posted an operating loss in the second quarter of $0.45 per share instead of the $0.17 analysts expected. It’s not surprising that CLOV stock surged in this market. The focus was clearly on CLOV’s top-line.

These gains were driven by a 125% increase in membership year over year. These numbers are very solid, even when adjusted for COVID-19. These numbers indicate that there may be more opportunities for growth.

Clover Health’s management team gave strong guidance and predicted that revenues would be between $1.4-$1.5 billion. These revenues will result in a loss of between $210 million to $250 million for Clover Health.

Despite increasing revenue and membership, the company continues to lose money. However, it appears that there is sufficient interest in such businesses right now. However, it is uncertain how the market will continue rewarding revenue growth over profitability.

Problematic Business Plan Might be a Hurdle

Clover Health aims to offer vast medical coverage at an affordable rate, compared to its competitors. In order to do this, Clover Health must reimburse healthcare providers quicker to reduce their costs. Clover Health also plans to pay providers up to twice the industry average.

This business model is not profitable. This is something investors should be aware of. Clover Health plans to make Clover Assistant a part of its business strategy to achieve its goals. Clover Assistant provides technology solutions for cost-cutting goals. Clover Health thinks it is capable of lowering its cost profile sufficiently to allow these investments to be worthwhile through technological innovation.

This model, however, is not yet profitable. This company is growing quickly and it is good for customers. Investors concerned about the viability of this business model might have cause to be worried, due to these quarterly ballooning losses.

What do analysts think about CLOV stock?

According to TipRanks analyst ratings consensus CLOV stock was a Moderate Buy. From the four analyst ratings available, 1 hold recommendation is included and three sell recommendations are made.

The average Clover Health Investments price target is $9. The price targets of analysts range from $7 to $10 per share.

Bottom Line

As of now, there isn’t any compelling reason to buy or hold this stock. CLOV stock might see an increase in value over time. An investor who is looking to invest in the long-term may be wiser to hold on until this company’s business model proves itself.

Disclosure: Chris MacDonald had no position at the time this article was published.

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