Clover Health Investments: Buy, Sell, Or Hold?

Medicare insurance technology company Clover Health Investments (CLOV) has had a rocky start since going public earlier this year. A short-seller report from Hindenburg Research criticized its business model and questioned its practices, leading to an SEC probe. Despite this, Clover Health continues to grow its business at an impressive rate, with a 43% increase in the penetration of its Clover Assistant platform among existing members. With the stock now trading at a discount, is it a buy?

Is Clover Health a bargain buy?

Clover Health Investments (CLOV) is a Medicare Advantage insurance company that uses its proprietary platform, the Clover Assistant (CA), to improve outcomes for its members. The company went public earlier this year through a merger with a special purpose acquisition company (SPAC) and has since experienced a significant decline in its stock price, trading at a discount. With that in mind, is Clover Health a bargain buy?

Arguments for Buying Clover Health:

• Impressive Growth and Reach: Clover Health has been growing its business at an impressive rate. It has a vast geographical reach across over 100 markets in seven US states and a membership of 66,000 as of February 2021. Its membership numbers are expected to increase to between 68,000 and 70,000 by December 2021.
• Strong Revenue Growth: Clover Health has demonstrated strong revenue growth, with a 21% increase in the first quarter of 2021 compared to the previous year. In 2020, the company grew its sales by 46% compared to 2019.
• Addressable Market and Growth Potential: Clover Health has identified a colossal addressable market of roughly $270 billion in annual spending, which could rise to $590 billion by 2025. This growth potential, along with its ability to continually expand, makes it an attractive investment opportunity.
• Attractive Share Price: Trading under $10 as of May 2021, Clover Health's share price is attractive for investors, especially considering its growth profile.
• Direct Contracting Entity: Clover Health's newly launched Direct Contracting entity is expected to accelerate the number of lives on its Clover Assistant platform. The company projects that this initiative will quadruple its membership.

Arguments Against Buying Clover Health:

• Profitability Concerns: Clover Health has yet to achieve profitability and is focused on expanding its business rather than improving margins. The company incurred a sizeable net loss of $48.42 million in the first quarter of 2021.
• SEC Probe and Negative Reports: A short-seller report by Hindenburg Research criticized Clover Health's business model and practices, triggering an SEC probe. Although Clover Health dismissed the allegations, the negative reports and uncertainty around the SEC's involvement have weighed on the stock.
• Competition and Market Dynamics: Clover Health operates in a highly competitive market dominated by established players like United Healthcare and Humana. While the company has expanded its membership and revenues, it faces significant competition from incumbents and other startups leveraging technology.
• Valuation Concerns: As of March 2021, Clover Health's stock was trading at a multiple of 5.4 times its sales over the past 12 months, which is relatively high compared to the average healthcare stock in the Health Care Select Sector SPDR Fund.

Considering the arguments for and against, Clover Health presents a speculative investment opportunity. While the company has demonstrated impressive growth and strong revenue numbers, it has yet to turn a profit, and there are concerns about the negative reports and competition in the industry. Therefore, investors should carefully weigh the risks and rewards before making a decision.

What is Clover Health's business growth?

Clover Health Investments (CLOV) is a Medicare Advantage insurance company that uses its proprietary platform, Clover Assistant (CA), to improve outcomes for its members. CA effectively stores and processes patient records and provides recommendations to enhance the quality of its services and control costs.

Clover Health has experienced significant business growth in recent years. In 2020, the company grew its sales to $673 million, a 46% increase compared to 2019. This growth continued into 2021, with Clover Health expecting revenues of at least $820 million, representing a 22% sales growth from 2020. The company has also expanded its membership, attracting 58,056 members as of December 31, 2020, with over 66,000 Medicare Advantage members as of February 2021.

Clover Health's growth can also be attributed to its expansion into new markets. As of 2021, the company had a massive geographical reach across more than 100 markets in seven different states in the United States. Additionally, Clover Health has joined the Direct Contracting model, which is expected to increase the number of lives on its Clover Assistant platform. The company's internal projections estimate that this offering could quadruple its membership.

Despite its impressive business growth, Clover Health has faced some challenges. In February 2021, a short-seller report by Hindenburg Research criticized the company's business practices and questioned the effectiveness of its technology. However, Clover Health has continued to focus on expanding its business and improving its technological capabilities.

In terms of profitability, Clover Health has yet to turn a profit, even on an adjusted basis. The company is sacrificing short-term profitability by investing in its expansion into additional geographies and improving its technological capabilities. Clover Health's management predicts that this growth will continue in 2021, although at a slower pace.

What is the competition like?

Clover Health Investments, Corp. is a healthcare technology company that provides Medicare Advantage plans to older Americans. Clover's platform, the Clover Assistant (CA), uses patient-centred analytics and a dedicated care management team to identify potential risks and provide preventive care. This enables patients and their healthcare providers to reduce avoidable spending and identify and manage chronic diseases.

Clover Health faces competition from other companies in the healthcare technology space, particularly those offering Medicare Advantage plans. One source names the following as possible competitors:

• UnitedHealth Group Inc. (UNH)
• Humana Inc. (HUM)
• Anthem Inc. (ANTM)
• Centene Corp. (CNC)
• CVS Health Corporation (CVS)

These companies, and others, compete with Clover Health for market share and customer engagement in the healthcare technology and Medicare Advantage sectors.

Clover Health differentiates itself from competitors by using its proprietary technology platform to collect, structure, and analyse health and behavioural data to improve medical outcomes and lower costs for patients. Clover also has a broad network of over 60,000 providers, enabling members to easily access the care they need.

In addition, Clover Health has a strong geographical reach, operating in more than 100 markets across seven states in the US. As of February 2024, the company reported a membership of 66,000.

What is the company's growth strategy?

Clover Health's growth strategy involves expanding its market reach and investing in technology to improve outcomes and lower costs. The company has a large geographical presence across the United States, with a membership of 66,000 as of February 2021. Clover Health's proprietary platform, the Clover Assistant (CA), is key to its growth strategy. CA effectively stores and processes patient records and provides recommendations to enhance service quality and control costs. In the past year, CA's penetration among existing members was at 56%, a 43% increase year-over-year.

The company's management plans to continue investing in expanding to additional geographies beyond the 34 counties it currently serves. They also aim to launch direct contracting with physicians to increase the number of patients covered by their program, with internal projections estimating a potential quadrupling of membership.

Clover Health's growth strategy is focused on increasing market share and leveraging technology to improve efficiency and reduce costs. The success of this strategy is evident in their impressive revenue growth numbers, with a 21% increase in the first quarter of 2021 compared to the previous year.

What is the stock's performance?

Clover Health Investments (CLOV) has had a poor performance since going public earlier this year. The stock has tanked, trading at a significant discount, and is down over 40% year-to-date, while the S&P 500 has risen by over 6%.

The company's share price has suffered due to a short-seller report by Hindenburg Research, which criticised its business model and questioned its practices. This was followed by an SEC probe, although the matter appears to have died down.

Despite the negative sentiment, Clover Health's business is growing at an impressive rate. The company's revenue grew by 21% year-over-year in the first quarter, and it expects revenues to be in the range of $810 million to $830 million for the full year.

In terms of valuation, Clover Health is considered to be overvalued, with a price-to-sales ratio of 5.8, which is high compared to the average healthcare stock. However, its price metrics are significantly lower than the sector median, and its mean price target is roughly 70% higher than its current price.

The stock's performance has been mixed, with strong revenue growth but a lack of profitability. Clover Health is investing heavily in expanding its presence and improving its technology, which has impacted its bottom line.

Overall, the stock is considered a bargain buy, given its growth potential and the current discount in its share price. However, it is not without its risks, and investors should carefully consider the potential impact of negative reports and ongoing investigations before making a decision.

Frequently asked questions