Share Dilution

CLOV stock: 3 key factors that are worrying and 1 that brings hope

Health Clover (NASDAQ:CLOV) is a Medicare Advantage insurer in the United States that collapsed more than 74% in 2021. CLOV stock was trading at nearly $ 15 per share in early January, collapsed through May, then s ‘recovered in June, attempting to surpass the high level in January. Unfortunately, it didn’t hit that target and has since crashed, closing at $ 3.86 on December 15, 2021.

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For investors who are passionate about dynamic stocks, technical analysis, or memes stocks, Clover Health has generated a lot of excitement and crazy price swings. Take a look at its 52 week range of $ 3.92 to $ 28.85. Riding the wave to the top was too exciting, buying near the top was too painful. Joy and drama are part of everyday life in the stock market. What should you know now about the CLOV stock?

Clover Health: An Overview of Previous Analysis

In my previous articles on Clover Health: “After checking his health, Things don’t look good for CLOV Stock ”and“ Clover Health has serious fundamental flaws and Troubled business plan”I argued that several negative factors made the stock risky, expensive and speculative.

These factors were the stock market meme frenzy, a shareholder deficit, major stock dilution, and a business plan that I called “problematic.” I summarized that “with increasing revenue and membership, the business continues to lose money. And the outlook for the year 2021 according to Clover Health is that the net loss is expected to be between (210) and (170) million dollars. … I see no compelling underlying reason to buy the stock.

A few months later, there are three key factors that are worrying and one that brings some hope. I’ll start with the positive news first.

Growth in revenues and memberships: strong momentum

Cover Health gained ground by generating revenue and increasing the number of its memberships in 2021. By Fourth quarter 2020, the company reported total revenue of $ 673 million, up 46% year-on-year. In fiscal year (FY) 2021 for Q1, Q2 and Q3, revenue growth reported according to Market surveillance was 1,384,203.56%, -2.75% and 95.11%, respectively. The figure for Q3 2021 revenue was $ 427.2 million.

There is a pull in revenue growth. In its third quarter 2021 financial results, Clover Health reported that “Lives under Clover Management have increased 125% year over year.”

So what are the negative factors for Clover Health that investors should be aware of?

Net losses persist with CLOV stock

Clover Health is a losing money business. Despite its sales growth dynamic in 2021, the net losses recorded were $ 48.4 million for the first quarter, $ 317.6 million for the second quarter, and $ 34.53 million for the third quarter.

Another reason for concern with profitability is that Clover Health reported a GAAP Medicare Advantage (MA) medical care ratio (MCR) of 102.5% for the third quarter of 2021. This is compared to a figure of 86.7% in Q3 2020. This ratio is calculated by dividing the total medical expenses paid by the total insurance premiums that an insurer collects. The ideal MCR should be between 80% and 85% for a small and large group of insurance companies. A lower ratio as close to the stated range is preferable and signals higher profitability for the insurer.

Clover Health should try to lower its MCR to achieve and maintain profitability in the coming quarters.

Free cash flow: the burning of cash continues

Free Cash Flow (FCF) is a very important financial measure for both financial performance and for stock valuation. It is the money a business has left after paying its operating and capital expenses. Cash is king for any business.

Clover Health has a negative trend linked to FCF, burning cash in 2021 for the first three quarters. It is not a sustainable trend. Burning money can lead to bankruptcy. In the first quarter of 2021, Clover Health reported FCF figure of $ 92.97 million, the highest number for the nine months of fiscal 2021. For those nine months, total cash consumption of $ 202.64 million dollars is not a positive financial performance.

Stock dilution

Clover Health announced a public offering of class A ordinary shares which will provide approximately $ 300 million in gross proceeds which will be used primarily for working capital and general corporate purposes. This worsens the intrinsic value of the CLOV stock, which is bad news for investors. I believe that unless Clover Health finds a way to make its business model work, its goal of achieving profitability in 2022 is too ambitious and unrealistic.

Overall, I continue to dislike CLOV’s stock. The negative factors are much more essential than the positive factor alone. Until Clover Health becomes profitable, it is best to avoid it.

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At the date of publication, Stavros Georgiadis, CFA, had (directly or indirectly) no position in the securities mentioned in this article. The opinions expressed in this article are those of the author, submitted to Publication guidelines.

Stavros Georgiadis is a CFA charterholder, equity research analyst and economist. He focuses on US stocks and has his own stock blog at He has written various articles for other publications in the past and can be contacted at Twitter and on LinkedIn.

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