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CLOV Stock: Is It A Good Long-Term Opportunity?

Clover Health is a former SPAC that became a penny stock. At the $2-3 level, could CLOV be presenting a decent long-term opportunity?

Medicare Advantage company Clover Health  (CLOV) - Get Clover Health Investments Corp. Report has dropped over 80% since it went public in early 2021. Still in its growth phase, the company has been beset by controversies over its business model and has struggled to demonstrate a clear path to profitability. Many retail investors who bet on CLOV, which got swept up in the meme stock mania of 2021, are currently "bag holding" their positions.

However, when we take a long-term view, might investing in Clover still be a prudent move?

Figure 1: CLOV Stock: Is It A Good Long-Term Opportunity?

Figure 1: CLOV Stock: Is It A Good Long-Term Opportunity?

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The Promising SPAC Which Turned Into A Penny Stock

Clover's journey as a publicly-traded company has been intense since day one. Clover went public with a $7 billion valuation in January 2021 through a SPAC deal and was hyped up due to its connection to the "King of SPACs," billionaire venture capitalist investor Chamath Palihapitiya.

Chamath had also helped companies such as Virgin Galactic  (SPCE) - Get Virgin Galactic Holdings, Inc. Report and SoFi Technologies  (SOFI) - Get SoFi Technologies Inc. Report go public. Along the way, however, he accumulated plenty of criticism for offering risky reverse mergers to retail investors.

And those risks have materialized. After the hype around SPACs - essentially “blank check” companies - cooled down, investors started to move towards less speculative investments.

SPAC companies, Clover included, were also affected by a suite of common problems, including misaligned initiatives, high listing costs, and the dilution of shareholder value.

In November of last year, Clover announced a public offering of its common stock for about $300 million. While the move was billed as a way to fund continued growth, investors grew wary and CLOV’s share price tanked.

Clover also suffered a strong selloff after the release of the Hindenburg Report. That report alleged that dubious sales practices by the company and Chamath Palihapitiya misled investors on critical issues. It also revealed that Clover was being investigated by the Department of Justice for kickbacks to undisclosed third-party deals.

Compounding these problems was Clover’s inability to achieve - or even outline a solid path to - profitability. With shareholders losing faith, CLOV tumbled nearly 32% over the last four months.

Clover's CEO 5 Reasons To Be Bullish On CLOV

Looking for someone with a more optimistic view of Clover’s prospects?

Recently, via his Twitter feed, Clover's CEO Vivek Garipalli listed the top five reasons behind his bullish outlook on Clover.

Among the list of reasons given by the CEO, one, in particular, stands out: the fact that the company's business has been little impacted by the current, gloomy macroeconomic backdrop. Clover has proven to be a strong revenue generator in the Medicare Advantage market, which has the potential to reach billions of dollars in size.

Even if other sectors of the economy contract, the Medicare Advantage may continue to see steady growth.

Figure 2: Medicare enrollment and penetration change by year.

Figure 2: Medicare enrollment and penetration change by year.

Is It A Good Investment?

The Clover meme momentum that was driven by sheer buzz and enthusiasm has lost steam. Now, Clover shares have been trading more in line with the company’s fundamentals.

CLOV’s latest earnings results have shown that Clover continues to be a strong revenue generator, and the company remains cautiously optimistic that this year's results will improve considerably compared to last year’s.

However, during Q1, Clover reported a 55% increase in net loss YoY to $75.3 million. As the company continues to invest in its growth, particularly through Clover Assistant, perhaps the biggest question still hanging over Clover is whether it will achieve profitability.

According to Seeking Alpha, only one analyst predicts that Clover will reach profitability, and only then in 2026.

Figure 3: Clover consensus EPS estimates.

Figure 3: Clover consensus EPS estimates.

Recent news indicates that Clover is preparing to raise another $300 million in capital through the issuance of debt, shares, or warrants. The company says those funds will be used to pay off debt, grow a business, or perhaps even acquire a competitor. Such an issuance would of course cause Clover shares to continue to suffer in the short-term, thanks to dilution.

Clover remains a high-risk investment in both the short and medium-term. There’s considerable risk in the long run, too. But, considering Medicare Advantage’s consistent growth trends and Clover’s ability to generate solid and increasing revenues, there may be good reason to take a shot on CLOV shares at their current, battered prices.

(Disclaimers: this is not investment advice. The author may be long one or more stocks mentioned in this report. Also, the article may contain affiliate links. These partnerships do not influence editorial content. Thanks for supporting Wall Street Memes)