Sep 1, 2021
[3 min Read]
One of the most popular stocks on social media platform Reddit is $CLOV or Clover Health. Shares of the health-tech company rose from $6.93 per share in May 2021 to $15 in July 2021 and are currently trading at $8.47.
While it was part of the meme stock mania recently, let's take a look at the company's fundamentals to see if it's a good long-term bet right now.
An overview of Clover Health
Clover Health aims to create sustainable healthcare for individuals. The company is focused on leveraging technology that will enable it to solve a major data problem and avoid limitations surrounding legacy players.
It is a next-gen Medicare Advantage insurer and its flagship software platform is known as Clover Assistant which provides American seniors with PPO (preferred provider organization) and HMO (health maintenance organization) plans. Clover claims these plans are affordable and offer members the lowest out-of-pocket costs for primary care physician co-pays, specialist co-pays, drug deductibles, and drug costs in their markets.
Clover also empowers physicians with data-driven, personalized insights at the point of care through its software platform which improves the clinical decision-making process. At the end of 2020, more than 2,400 PCPs or primary care physicians have been onboarded to use the Clover Assistant platform. According to Clover's annual report, the annual spending for the Medicare Advantage market was around $270 billion last year and is forecast to touch $590 billion by 2025.
Clover Health is part of a highly regulated industry. It is required to spend 85% of federal reimbursements on the healthcare needs of patients. However, this figure will be much higher as the company is a new entrant in a space dominated by industry leaders for several decades.
However, Clover Health continues to gain traction as the number of patients onboarded by the company continues to expand on the back of improved coverage. This has enabled the company to increase its sales by 140% year over year to $412.5 million in Q2 of 2021. The number of lives covered by the company almost doubled to 129,000. However, this growth has also widened Clover's medical loss ratio of MCR to 111% in Q2 from 70.1% in the year-ago period. In short, Clover is paying out more than it receives via federal reimbursements.
In the June quarter of 2020, utilization rates decreased for Clover Health as several medical treatments were postponed amid COVID-19. Despite the fall in utilization rates, Clover Health reported a pre-tax income of $5.4 million in Q2 of 2020. However, in Q2 of 2021, its pre-tax loss stood at $317 million on the back of a non-cash expense that amounted to $134.5 million.
Analysts tracking the stock expect sales to grow by 116% year over year to $1.45 billion in 2021 and by 15.3% to $1.67 billion in 2022. Its adjusted loss per share is also forecast to narrow from $1.9 in 2021 to $1.22 in 2022.
CLOV stock is valued at a market cap of $3.5 billion which suggests its trading at a reasonable multiple and is not too expensive. In order for CLOV stock to beat the broader markets, it will need to expand its base of Medicare patients and clinicians at a rapid rate.
The patients will come onboard as they will benefit from a higher coverage of services compared to their current plan while clinicians will be compensated on the basis of the services they provide.
As seen earlier, Clover wants to offer coverage that is cheaper than its peers and accelerate the process of healthcare staff refunds while lowering the healthcare costs simultaneously. Clover in fact plans to reimburse healthcare providers at a rate that is twice the industry standard.
These plans might seem lofty for investors but Clover is confident about its tech platform that uses artificial intelligence tools to streamline these processes.
I am bullish on Clover Health solely on the basis of its valuation that is attractive given its solid top-line growth rates.