In the continuing saga of 2021 meme stocks, a new player has entered the field. Tennessee-based healthcare company Clover Health Investments Corp has enjoyed major upswings in stock prices in recent weeks. Moreover, it’s unrelated to entertainment-industry meme stocks like GameStop and AMC.
Clover Health (NASDAQ:CLOV) is a Preferred Provider Organization (PPO) and Health Maintenance Organization (HMO) with a Medicare Advantage contract. In June, shares of CLOV shot up due to Reddit users’ online activities boosting the company. As of June 10, shares were up by 180% for the month, with six times its normal trading volume.
TL;DR
- Clover Health (CLOV) provides a healthcare platform to help patients receive better physician care at lower costs.
- In January, CLOV went public through a merger with a blank-check company backed by venture capitalist and billionaire Chamath Palihapitiya.
- In February, short seller Hindenburg Research published a report claiming Clover Health lured investors into buying without disclosing its investigation by the Justice Department.
- CLOV share prices dropped to a low following that report, but then in June its prices jumped above $28 apiece.
- Clover Health has been one of the latest targets of the meme stock crew, in which social media drives unusual interest in a low-performing stock.
Why Clover Health reached “meme stock” status
The WallStreetBets community has a strong interest in short-selling stocks. These are the types that are ideal for bringing interest in a short squeeze. When Clover Health stock declined in prices following the report from short seller Hindenburg Research, meme stock traders took notice.
Clover Health’s negative reports hit the media, claiming that investors were misled by lack of transparency in the DOJ investigation. This was the perfect opportunity for meme stock traders to hype up CLOV stock, as the shares would drop.
After its massive surge on June 9, Clover Health received a downgrade from Bank of America, which set CLOV to “underperform” Although the bank analyst noted positives about the company (its impact of reduced healthcare costs for patients), the underperform rating typically would be considered encouragement to sell.
The news of the bank’s belief that Clover Health’s valuation is unjustifiably high has impacted the share value, resulting in a drop on June 10.
Results of the CLOV meme stock popularity
The internet-fueled skyrocketing of certain stock prices has left investment analysts puzzled, but not completely blindsided. Since GameStop and AMC’s historic rises in January, multiple stocks including CLOV have had their fifteen minutes of fame (or longer).
Certain stocks like CLOV have experienced unusual spikes in activity (as much as 225% higher over the course of a few weeks in late May and early June) and volatility in the past few weeks. Meanwhile, while the S&P 500—a traditional metric for the overall market as a whole—only rose about 3% in the past month.
If anything, the meme stock phenomenon has brought into question certain expectations people have of the stock market. It certainly shows that fundamentals of a business aren’t always what drive share price increases.
Was Clover Health stock halted?
Unlike other popular meme stocks like GME and AMC, the Reddit crowd hasn’t impacted CLOV stock enough to warrant a trading halt or pause.
Sometimes, trading apps, brokerages, exchanges, or the SEC itself will temporarily halt a stock to ensure investors are informed of any major company news, regulatory developments, or key financial updates.
Alternatively, there may be significant share price changes in a set time period (for Nasdaq, 10% or more during a five-minute period).
What the future may hold for Clover Health
Clover Health isn’t considered a dying business model (the way GameStop and AMC were) and has performed well recently. While its potential may not necessarily match the enthusiasm of the WallStreetBets and Discord, Clover’s healthcare services are viable in the market.
Clover’s latest quarterly financial reports indicated that the company is growing at a decent rate, both in revenue and membership. The focus remains on the Medicare Advantage market, which is crowded with about 3,000 MA plans from private insurance companies. But the market is expected to grow from $270 billion today to $590 billion by the year 2025. CLOV will continue to compete with major companies like Anthem, Cigna, and UnitedHealth Group.
An analyst from Motley Fool UK pointed out that when share prices inflate due to meme stock hype, it distorts the fair price of the stock. Clover’s recent volatility could also increase the risks of investing in CLOV.
Bottom line
As with any stock market investment, investors must carefully analyze when buying shares in a single company—CLOV included. As prominent as meme stocks are today, there’s no shame in doing your due diligence on the latest sentiment-based stocks.