Clover Health (NASDAQ:CLOV) seems to be losing the interest of the meme stock crowd. In July, I theorized that CLOV stock might be in line for another short squeeze. That didn’t happen. In fact, the stock looks boring. In my opinion, that’s the best thing that can happen to the company.
And the CEO seems to agree. In an interview with Yahoo! Finance, Clover Health CEO Vivek Garipalli said he and president Andrew Toy “are in a bit of a unique spot, which is, our ego is not tied to some near-term financial success. Or, you know, whatever the stock price does it does. And we think our real measurement of success and impact may be where our stock price is in five to 10 years from now.”
In the same interview, Garipalli remarked that Clover was still in its infrastructure-building phase. The takeaway being that investors won’t see “significant progress for another three to five years.”
Clover Health’s CEO is telling investors everything they need to know about the short-term fortunes of CLOV stock. The only question is are they listening?
It’s All About Efficiency
One of the major problems with healthcare is the amount of wasteful spending. In 2019, the National Academy of Medicine reported that 30% of healthcare expenditures qualified as wasteful.
The solution, as Clover and other companies would tell you, is data. This data could be used to inform better patient outcomes. The problem is that a patient’s private health care information is … private.
So acknowledging that data tends to be housed in different silos, Clover Health has created its own silo which it says is a more efficient approach to Medicare. The company’s Clover Assistant tool is a cloud-based system that a physician uses with a patient.
For the Clover Assistant to deliver on its promises it must accomplish two things. First, it has to prove that it can add customers. And second, it has to garner acceptance by physicians. By both metrics, it seems to be working.
Here’s the problem. In attempting to make Medicare more efficient, the company is less efficient. At least as it pertains to operating income. The company is losing money even as they add new patients. In a prior article about Clover, I likened this to the food truck that keeps losing money even though it outsells the competition.
Medicare gives Clover no pricing power. I also pointed out that Medicare Advantage plans operate within a strict regulatory framework that places a limit on out-of-pocket costs in addition to capping service fees.
Plus, there’s the realization that Clover is not outselling the competition. In fact, it just recently went over 100,000 customers despite being in business for 10 years. Other competitors have gotten past that milestone much faster.
Treat CLOV Stock as the Speculative Stock It Is
Garipalli does not try to hide the fact that he is trying to revolutionize health care. He also admits that it has yet to be seen if Clover’s model will win the day. That sounds like a penny stock to me. And if Garipalli is true to his word, that should be okay with him.
At that price level, CLOV stock would merit a speculative bet. At anything higher than that, investors seem to be begging to be disappointed.
In a strange way, what’s happening with CLOV stock is indicative of the market working. While I think that the short squeeze mania is misguided, ultimately Clover Health seems to be trading right about where it should be.
In fact, it might still have further to drop. Clover feels like a penny stock. And if it were priced accordingly, it might be easier for the company’s messaging to be heard.
On the date of publication, Chris Markoch 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.
Chris Markoch is a freelance financial copywriter who has been covering the market for seven years. He has been writing for InvestorPlace since 2019.