Clover Health Investments, Corp. (CLOV), in Franklin, Tenn., is a U.S.-based Medicare Advantage insurer that provides preferred provider organizations and health maintenance organizations with health plans for Medicare-eligible consumers. The company was listed on the New York Stock Exchange on January 8 through a merger with venture investor Chamath Palihapitiya’s Social Capital SPAC.

CLOV caught Redditors’ attention in early June, fostering a short squeeze to reach its record high within a week.. However, the Reddit-fueled run-up for this meme stock did not last long due to its weak fundamentals. CLOV shares are down substantially from their June high. The stock is currently trading below its 50-day and 200-day moving averages and near its 52-week low.

The stock’s price slumped after the company announced its issuance of an additional $300 million of common stock, diluting the holdings of existing shareholders. On November 23, CLOV closed a public offering of shares of its Class A Common Stock. The company expects to use the offering’s net proceeds for working capital and general corporate purposes.

Here is what could shape CLOV’s performance in the near term:

Bleak Financials

CLOV’s operating expenses increased 202.3% year-over-year to $576.42 million in its fiscal third quarter, ended September 30. Also, its loss from operations stood at $149.25 million, up 590.4% from the same period last year. Its net income declined 370.6% year-over-year to a negative $34.53 million. The company’s net loss per share came in at $0.08, compared to $0.02 in net income per share in the third quarter of 2020. Its normalized adjusted EBITDA was negative $61.08 million, representing a substantial decline from its negative $36.78 million year-ago value.

Lawsuits

In August, the international securities and consumer rights litigation company Scott+Scott Attorneys at Law LLP investigated whether some directors and executives of Clover Health Investments breached their fiduciary duties to SCH III and its shareholders. This could have negatively impacted CLOV’s share price and could continue to do so.

Poor Profitability

CLOV’s negative 11.31% gross profit margin is substantially lower than the 54.86% industry average. Also, its 0.05% Capex/Sales is 98.8% lower than the 3.93% industry average. Furthermore, CLOV’s EBIT and EBITDA margins of negative 44.71% and 44.66%, respectively, compare with the 2.32% and 5.77% industry averages.

POWR Ratings Reflect This Bleak Prospects

CLOV has an overall F rating, which translates to Strong Sell in our proprietary POWR Ratings system. The POWR Ratings are calculated considering 118 distinct factors, with each factor weighted to an optimal degree.

The stock has a grade of D for Quality, consistent with its lower-than-industry profit margins.

CLOV has an F grade for Stability. Its beta of 1.05 justifies this grade.

Among the 11 stocks in the Medical - Health Insurance industry, CLOV is ranked last.

Beyond what I have stated above, one can also view CLOV’s grades for Sentiment, Growth, Momentum, and Value here.

View the top-rated stocks in the Medical - Health Insurance industry here.

Bottom Line

CLOV was tagged as a meme stock due to retail traders’ interest in it earlier this year. However, its weak fundamentals led the stock to a price pullback. The company’s weak bottom line is a concern. Analysts expect its EPS to remain negative at least until the next year. Thus, we think the stock is best avoided now.

How Does Clover Health Investments, Corp. (CLOV) Stack Up Against its Peers?

While CLOV has an overall POWR Rating of F, one might want to consider investing in the following Medical - Health Insurance stocks with an A (Strong Buy) rating: UnitedHealth Group Inc. (UNH), Anthem Inc. (ANTM), and Molina Healthcare Inc (MOH).

CLOV shares rose $0.04 (+0.74%) in premarket trading Monday. Year-to-date, CLOV has declined -67.74%, versus a 23.96% rise in the benchmark S&P 500 index during the same period.

Subhasree’s keen interest in financial instruments led her to pursue a career as an investment analyst. After earning a Master’s degree in Economics, she gained knowledge of equity research and portfolio management at Finlatics.

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