Making Sense of Clover Health’s (CLOV) Mind-Boggling Stock Price Rally
Clover Health (NASDAQ:CLOV), a medical insurance provider affiliated with the US Medicare program, has again become a center of attention for retail investors following a 20 percent-plus rally yesterday without any discernable stimulating factor.
In fact, yesterday’s rally in Clover Health shares propelled the stock to the top of the Reddit-based WallStreetBets’ leadership board, as per two separate tabulations by “Swaggy Stocks” and “Unusual Whales.”
Before discussing the factors that may have been responsible for this mind-boggling price action in Clover Health shares, let’s briefly discuss the company’s business model. As stated earlier, Clover Health is an affiliated insurance provider under the US Medicare program. The company currently receives a fixed sum of money (around $11,000) every year for each of its registered patients. Its profit is computed by deducting all patient-related insurance claims from this lump-sum amount. As is evident, Clover Health has an incentive to minimize the costs related to the patients’ claims. In order to achieve this, the company incentivizes accurate diagnosis of its registered pool of patients by onboarding doctors to its proprietary Clover Assistant digital platform – a web application that aggregates all Clover patient outcomes and uses models to identify issues such as patients not following their prescriptions – and paying those doctors nearly double the prevailing Medicare physician fees. In fact, it was this lucrative physician fee structure that was the subject of a high-profile short report a few months back.
This brings us to the crux of the matter. Clover Health calls have been witnessing high volume over the past couple of days without any specific stimulant.
$CLOV 📈 22% yesterday.
As market opened, $CLOV 🐂 dominated!
Historical flow + call volume/premium has been really high last 3 days with +60% bullish premium breakout last Thurs.$CLOV levels today were:
- 1k whales: 57% 🐂
- 15k: 54% 🐂
- 30k: 51% 🐂https://t.co/zAJThSLRaI pic.twitter.com/2fjdNuBLN7
— unusual_whales (@unusual_whales) September 8, 2021
Of course, with Americans over the age of 65 expected to number around 71 million by 2030, Clover Health’s Total Addressable Market (TAM) is expected to record a healthy increase over this decade. For reference, just 54.1 million Americans were over the age of 65 back in 2019. Even with capped profits – Clover Health is not allowed to earn a profit of over 15 percent per patient – the company constitutes a compelling long-term play.
Moreover, Clover Health continues to record healthy revenue growth, with its top-line metric jumping 140 percent on an annual basis in Q2 2021. The company now expects to earn a full-year revenue of $1.4 billion to $1.5 billion.
However, none of these factors can explain yesterday’s price action in Clover Health shares, leading many analysts to conclude that the stock might be witnessing a short squeeze. After all, the stock does have an elevated short interest, hovering over 15 percent of the entire float as of the 03rd of September.
$CLOV short interest is $269M
30.36M shares shorted
15.19 % SI% of Float
13.19 % S3 SI% Float
1.45 % fee
Shares shorted down -9M shs, worth $84M, -23.77 %, over the last week.
Shorts up +$57M in 2021 mark-to-market profits;
including +$5M on today's -2.07 % move. pic.twitter.com/HRRs4Y7Pn8
— Ihor Dusaniwsky (@ihors3) September 3, 2021
So, is Clover Health in a short squeeze currently? As with most things related to the markets, this conclusion can only be drawn in hindsight. At the time of writing, the stock is moderately down in the pre-market trading session. Nonetheless, investors should keep a close eye on the stock’s short interest. Any material plunge would only lend credence to the thesis of an ongoing short squeeze.
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