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CLOV Stock: The Next Big Short Squeeze?

Clover Health could be the next momentum stock. After being one of Reddit's top targets last week, a new rally could be in the works.

About Clover Health

The Franklin, Tennessee-based company Clover Health Investment  (CLOV) - Get Clover Health Investments Corp. Report, an American Medicare advantage insurer, uses data analytics to offer more affordable health plans within a network of fixed doctors and hospitals. Founded in 2014, it has 458 employees and a current market value of $5.5 billion.

The company went public via SPAC through a merger with an acquisition company in a deal that valued Clover at nearly $4 billion plus the inclusion of $1.2 billion in cash received.

Figure 1: Clover Health, the "King of SPACs".

Figure 1: Clover Health, the "King of SPACs".

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From “King of SPACs” to meme

Known as the “king of SPAC's,” Clover saw its stock price plummet earlier this year. The likely culprit: research firm Hindenburg shorted the stock, claiming that the company was a target of investigation due to its business model and sales practices.

After Hindenburg's bet, CLOV share price plunged 50% year-to-date by the end of May. At that point, the stock caught the attention of Wall Street Bets “apes” and became a new target of meme mania. Since early June, stocks have risen 190% and then fallen around 50% after peaking.

Figure 2: CLOV stock chart.

Figure 2: CLOV stock chart.

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A Russell 2000 listed company?

Just ahead of the share price spike, news about the addition of CLOV to the Russell 2000 index in June drew attention on the Reddit forum. This could have served as a key catalyst for Clover Health stock. However, index inclusion has not been confirmed, and remained purely speculative.

The speculation was probably sparked by the annual reconstitution of the Russell 2000 index in June. A rebalancing to reflect changes in the US equities market can move company or sector prices in the short term, also leading to considerable volatility.

What to expect now

The discussions on Reddit about a potential CLOV share price rally seem to be centered around a possible new short squeeze, and much less based on business fundamentals. In fact, the performance of the stock has been consistent with the volume of comments on Reddit – see below.

Figure 3: CLOV - WallStreetBets ticker sentiment.

Figure 3: CLOV - WallStreetBets ticker sentiment.

From a fundamentalist point of view, Clover still has some work to do. Despite reporting 18% growth in membership and a $200 million increase in revenue in its most recent fiscal quarter, the company reported an EPS miss of two cents against Wall Street’s expected $0.11 loss. It did not help that Clover’s revenue guidance for the next period slightly missed consensus as well.

According to Yahoo Finance, analysts' current average rating on the stock is a hold, with a target price of $9.50 representing 35% downside risk from current prices. However, probably more importantly for a potential “meme attack”, CLOV’s short volume was at a record-high at last check, at 41.4 million shares.

(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)