Over a year ago, meme stocks were flying high and looking like amazing buys. But much has changed since then, and growth stocks as a whole have been falling sharply of late. Two popular meme stocks that have been among those crashing hard include Clover Health Investments (CLOV +1.39%) and fuboTV (FUBO +0.00%).
Both are down more than 80% from their 52-week highs, which could make them safer buys today. Is there still too much risk surrounding these unprofitable businesses, or might Clover Health and fuboTV be good contrarian additions to your portfolio?
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1. Clover Health
Last year, Clover Health reported a net loss of $587.8 million, more than triple the $136.4 million loss it posted a year earlier. But meme investors weren't concerned so much about the company's bottom line as they were excited about its growth; the Medicare provider's top line doubled to just under $1.5 billion in revenue last year.
NASDAQ: CLOV
Key Data Points
There have been questions about how effective the company's proprietary software, Clover Assistant, is and whether it adds value for physicians or makes irrelevant diagnoses. A year ago, a short-seller report from Hindenburg Research targeted this and other areas of the business, saying that Clover Health, which went public through a special-purpose acquisition company (SPAC), was misleading its investors.
It's hard to prove those allegations, and all investors can rely on are the hard facts and numbers that Clover Health reports. On the positive side of things, the company continues to grow. It anticipates 2022 revenue to soar between $3 billion and $3.4 billion, effectively doubling its sales from the past year. And its Medicare Advantage membership will grow at a rate of at least 26%, reaching an average of more than 84,000 members.
However, overall profitability for the company will continue to be a challenge. Clover Health projects that its Medical Care Ratio, which measures total medical claims incurred against premiums earned, to remain as high as 99% this year. This would represent a modest improvement from the 106% it reported in 2021.
Clover Health's stock is down more than 25% so far this year, doing worse than the S&P 500, which has declined by 10%. At less than $2.80, it is down more than 90% from its 52-week high of $28.85. Its price-to-sales (P/S) ratio of 0.8 is low compared to a year ago when investors were paying a multiple of more than four. However, with cash burn still likely to continue amid the company's high expenses and MCR, Clover Health is still too risky to take a chance on today, especially when there are safer growth stocks out there to choose from.
2. fuboTV
What sets fuboTV apart from other streaming services is its focus on live sports. While other services may have some sports coverage -- Amazon reached an 11-year deal with the National Football League in 2021 to broadcast Thursday Night Football on its Prime Video service -- it's generally an area that is lacking for cord cutters.
NYSE: FUBO
Key Data Points
Like Clover Health, what has drawn investors to fuboTV's stock is its rapid growth. In 2021, the company's sales of $638.4 million rose an incredible 193% from the previous year. fuboTV projects that, in 2022, its top line will continue to expand, eventually rising beyond the $1 billion mark in sales.
However, the company is also unprofitable, incurring a net loss of $383 million this past year. And one of the challenges for the business is that its operating expenses are simply far too high to make it likely that fuboTV will turn a profit anytime soon. Its subscriber-related expenses last year totaled $593.2 million, which was 93% of its total revenue. These are costs related to distribution rights and don't even include other overhead that the company needs to cover, including selling, general, and administrative expenses. At $359.4 million, fuboTV's operating loss in 2021 was more than 56% of its revenue.
Year-to-date, shares of fuboTV have cratered by more than 70%. At around $4.50 per share, the stock is down more than 85% from its 52-week high of $35.10. Its P/S ratio is just under 1 and is much lower than the multiple of 8 it hit late last year.
However, that's unfortunately not enough of a reason to take a chance on the stock. The business' fundamentals are concerning, as the company doesn't appear to have a path to profitability, even amid such impressive growth. That means dilution is likely inevitable, which could continue to send the stock price down. Until fuboTV can show investors it's making some serious improvements in its operating margins, you are better off steering clear of this risky growth stock, regardless of any apparent discount in its share price.
