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Why Clover Health Investments Stock Fell 22% in May

By Nicholas Rossolillo - Jun 7, 2021 at 2:16PM

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A decent first-quarter 2021 update wasn't enough to offset short sellers betting against the stock.

What happened

Shares of Clover Health Investments (CLOV -0.34%) fell 22% in May, according to data from S&P Global Market Intelligence. First-quarter 2021 earnings weren't good enough to offset short sellers betting against the stock after it was noted earlier this year the Medicare insurance technologist is under federal investigation for how it compensates physicians for using its software.

CLOV Chart

Data by YCharts.

So what

It's not all bad news for Clover Health, though. The company said revenue was up 21% year over year in Q1 to a record $200 million. Its Medicare Advantage insurance membership was at 66,300 as of the end of March 2021, up 18% from a year ago, and management expects this figure to be 68,000 to 70,000 by the end of this year. More importantly, its new traditional Medicare insurance product is expected to have 70,000 to 100,000 members by the end of 2021. As a result, full-year revenue should be $810 million to $830 million, up 22% from 2020's results at the midpoint of guidance.

A mature couple drinking wine at a table on a lawn.

Image source: Getty Images.

The figure that has really captured investor attention, though, is the losses Clover expects to incur as it tries to expand its tech-enhanced Medicare products. Adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) losses could be as much as $240 million this year, according to the company's latest outlook. 

Now what

Clover is not in a dire situation. The company was nearing breakeven when it was in the process of completing its go-public proceedings backed by former Facebook (META -0.86%) executive Chamath Palihapitiya. It had over $720 million in cash and equivalents, and no debt on its books at the end of March -- enough liquidity to last at least a couple of years at the expected rate of loss this year. Though federal investigation into its practices is certainly worth keeping an eye on, no official accusations have been made from authorities as of this writing. 

The real story here is the long-term potential Clover has to disrupt and improve the healthcare and insurance industry. It certainly has the cash to make some real waves and has experienced some early success in its journey. With over one-third of shares outstanding sold short, the pessimism surrounding Clover might be way overblown. 

In the short term, expect this to be a very volatile stock as the bull and bear arguments jockey for position over Clover. Shares are down over 30% year to date but have rallied over 20% from their low point in mid-May. However, if you believe in the long-term potential of this health insurance disruptor, the main metrics to stay focused on are membership growth and the company's cash on hand.

Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to its CEO, Mark Zuckerberg, is a member of The Motley Fool's board of directors. Nicholas Rossolillo and his clients own shares of Clover Health Investments and Facebook. The Motley Fool owns shares of and recommends Clover Health Investments and Facebook. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Clover Health Investments, Corp. Stock Quote
Clover Health Investments, Corp.
$3.24 (-0.34%) $0.01
Meta Platforms, Inc. Stock Quote
Meta Platforms, Inc.
$179.33 (-0.86%) $-1.56

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