Clover Health (NASDAQ:CLOV) stock has few friends on the “buy” side today.
According to the Wall Street Journal, five analysts give shares in the Medicare Advantage provider either a “hold” or “sell” rating, with none of them willing to give it a “buy” rating.
Worse yet, retail traders haven’t been so keen on it either lately. Even a recent development (which admittedly seems like small potatoes) has failed to give it more than just a slight bump-up in price.
So, a lack of Wall Street or Main Street enthusiasm makes it a sell, right? Not exactly.
Although it’s been hard-hit by the deflating of the bubbles that formed earlier this year for meme stocks, special purpose acquisition company (SPAC) stocks and short-squeeze plays, it may still have more room to fall.
There may be something that comes about a few weeks from now that enables it to make a move back above $10 per share: lower-than-expected losses.
The problem is that it’s murky whether its recent cost control issues are a transitory phenomenon or something that will affect the company further over the next few years.
CLOV Stock and Its CMS Upgrade
Before diving into something that may help Clover in the near future, let’s take a look at the latest news item from the company: an upgrade of its flagship PPO plan by the Centers for Medicare and Medicaid Services (CMS). News of the agency also giving this company the go-ahead to expand its service area is related to this upped rating from CMS.
As discussed above, it wasn’t just the company that touted this to the public via a press release. Chamath Palihapitiya, who sponsored the SPAC that took this previously privately-held company public, tweeted about it as well. Both statements appeared to be an attempt to help renew excitement about CLOV stock
However, while not a negative, this development doesn’t seem that much of a positive. After the upgrade, Clover’s PPO plan now has a 3.5-star rating.
That makes it look as if its PPO plans are catching up with the middle of the pack in terms of quality than anything else. Despite Palihapitiya touting it, remember that CMS rates providers on a one-to-five scale.
Investors are correct in giving the stock just a small boost on this news. But while this news is by no means a game-changer, there may be something in the weeks ahead that fuels a bona fide rally for this hard-hit name.
CLOV May Announce Lower-Than-Expected Losses
All things considered, you can say few are expecting much out of CLOV stock right now. Analysts are bearish on its fundamentals, and retail traders are waiting for a reason to buy it again.
When they’ll jump back into it is unclear, given how much the meme stock and short-squeeze stock trends have fallen in popularity.
Even so, there may be something that possibly sends its higher again in the coming weeks. That would be its next earnings report.
Sure, this early-stage company has a big profitability problem. Clover’s MCR, or Medical Care Ratio, has lately come in at above 100%. It’s been paying more out in claims than it has collected in premiums.
However, it may surprise by delivering a lower-than-expected MCR. Over the past few quarters, the company has chalked up its high costs to the post-lockdown “reopening” that followed the vaccine rollout.
Medical appointments and procedures put on hold in 2020 are getting done in 2021, temporarily skewing the level of Clover’s outlays.
But this “pent up” demand may have peaked. The Delta variant outbreak of Covid-19 could also be delaying treatments/surgeries again.
With this, the company may manage to show a much better MCR number in its upcoming results which may be enough to fuel another spike back to $10-$15 per share.
Bottom Line: All Bets Are Off
There may be a pathway for Clover stock to bounce back to above $10 per share, but the “lower-than-expected MCR” thesis highlighted above is far from bulletproof. Other factors besides “reopening” demand may be behind the company’s heavy losses.
Also, despite having a much lower stock price now than it did a few months back, it’s still richly priced. Growth stocks may have more room to fall, as changes in Fed policy changes make them less appealing.
If you strongly believe the company’s heavy losses are transitory, by all means, roll the dice with CLOV stock. But holding off may be the way to go if you think it’ll still have cost control issues or that other risks will continue to weigh down on it.
On the date of publication, Thomas Niel did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Thomas Niel, a contributor for InvestorPlace.com, has been writing single-stock analysis for web-based publications since 2016.