CLOV Stock Is a Buy Even as the Short Squeeze Fizzles
The Reddit crowd has seemed to abandon Clover Health (NASDAQ:CLOV) as CLOV stock dropped like a rock from a high of $28 to approximately $8.20.
This shows the folly of following or chasing the FOMO crowd as the move from $10 to $28 was in approximately three days. No doubt more than a few retail traders were burned from the sell-off.
CLOV stock is now trading once again very close to the support level of $7.50. This support level is a very strong one for the company having been tested multiple times.
Every time CLOV finds itself in a downtrend, the stock always bounces back from these levels.
A massive short-squeeze is only possible when a hedge fund over-extends itself. I am sure Wall Street is now eyeing its risk exposures more prudently. Remember just because a stock like CLOV has high short interest doesn’t mean a short squeeze will happen.
Investors need to get back to evaluating stocks as long-term investments. Luckily Clover Health is an exciting company to be invested in.
A Closer Look at CLOV Stock
In April, Clover Health launched its direct contracting business. This could prove to be a major catalyst for business growth in the near term.
The Center for Medicare and Medicaid (CMS) unveiled Direct Contracting as a new type of payment model. The shift to Direct Contracting was meant to encourage healthcare/insurance providers to switch from a fee-for-service model to a more value-based model. In other words, to focus on health and outcomes rather expensive procedures.
The CMS’ goal with Direct Contracting is shifting more control to healthcare providers. The hope is that healthcare/insurance providers will invest more in technology since the incentives are aligned toward better health outcomes.
In this case, Clover Health already has a leg-up on its competition with its data-driven and artificial intelligence-enabled Clover Assistant software.
Clover Assistant is the company’s key differentiating factor. Traditional approaches to healthcare are limited by factors such as outdated technology and large capital requirements.
A tech-centric approach can lower costs as more members are added. As more physicians use the Clover Assistant, more data will be available; thus improving the software’s predictive capabilities. This will ultimately lead to better, cheaper outcomes.
Clover Health Has a Plan to Scale
Upon the launch of Clover Health’s direct contracting business, the company added 65,000 new members across eight states. The company has a robust plan to continue scaling this business by focusing on in-home primary care. Clover Health’s in-home primary care program was designed to better care medically complex cases.
Home-based care for individuals with a high-risk profile is more scalable than fixed-site-based care. This is because Clover Health can use its technological advantage to deploy care where patients live.
This is especially useful for frail or bed-ridden older adults who may have limited mobility. Clover Health’s in-home primary care program was able to reduce hospitalizations by 17% and medical expenses by $325 per member per month on average.
Clover Health believes it can scale its direct contracting business to up to 200,000 beneficiaries in the near term. The company is forecasting to reach between 70,000 and 100,000 beneficiaries by the end of 2021.
This should translate to approximately $20 million to $30 million worth of additional revenue for the company.
The Bottom Line on CLOV Stock
There’s a lot of things to like about Clover Health. The company is continuing to execute on its growth potential. Unfortunately, I believe the short-squeeze is over and the Reddit crowd has left to pursue other stocks.
While an investment in CLOV stock won’t make you rich overnight, it remains a solid long-term growth stock.
On the date of publication, Joseph Nograles 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.