On Tuesday, July 6, Clover Health stock (CLOV) - Get CLOVER HEALTH INVESTMENTS CORP Report headed lower by a painful 15%, accumulating losses of more than 50% since the first week of June. CLOV shares, which have been the target of bullish attacks by Reddit forums since April 2021, had spiked by more than 200% earlier in June.
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High short interest
It is unlikely that Clover Health’s business fundamentals played much of a role in catching the attention of the apes community – but rather the stock’s high short interest ratio of 37%. Below are some of the implications of CLOV currently being a bearish magnet:
- On the negative side, high short interest can suggest vulnerability of the business model, difficulties in the face of competition, or the company's worrisome financial health. In other words: longs beware.
- On the positive side, especially for short-term traders, overwhelming bearishness can lead to buying pressures if the stock price begins to move higher – i.e. a classic short squeeze.
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Why so bearish?
One factor supporting bearishness could be Hindenburg Research’s report that the Department of Justice has been investigating Clover Health for 12 potential infractions. Hindenburg’s dossier suggests that upcoding, or overbilling Medicare for services, is one of the outstanding issues.
It is probably not a coincidence that the damning report, released in early February 2021, preceded CLOV’s 48% decline between the end of January and the first week of March. Some of the drop, however, could also be blamed on the fizzling of young, growth stocks across the entire market in Q1.
Wall Street is not impressed
Clover Health does not seem to have strong enough fundamentals to impress Wall Street. According to Yahoo Finance, the consensus recommendation is hold, slightly skewed to underperform, and the average target price is $9.50 per share vs. the current market price of $10.
As recently as June, Bank of America downgraded CLOV from neutral to underperform, claiming that the company's fundamentals do not support the stock’s current price. Since the downgrade, CLOV shares have plummeted 30%.
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Apes are confident
Despite all the skepticism, the confidence of the apes – a crucial factor in triggering short squeezes – remains high. Clover has been a top 4 most cited stocks on Reddit (see below), and it has a community of over 35,000 apes. CLOV has already proven its moonshot potential, and hopes for another bullish attack remains intact.
CLOV has been underperforming in recent weeks, despite short interest remaining high. Do you think that there will be a short squeeze in CLOV?
(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)