Prolific SPAC (special purpose acquisition company) sponsor Chamath Palihapitiya has struck success with most of his blank-check companies, but not with Clover Health Investments (CLOV).
Palihapitiya’s Social Capital Hedosophia III completed its merger with the Medicare Advantage plan provider back in January. Following the deal, shares in the newly named Clover pulled back from highs set last year.
However, the downward pressure has been amplified by a short report issued by Hindenburg Research earlier this month. With the report accusing the company of failing to disclose an ongoing inquiry by the U.S. Department of Justice (DOJ), investors have been more cautious about taking positions in what (until recently) was seen as a great growth story in the healthcare sector.
Clover has fought back against these allegations, but so far, this has yet to help the stock move back in the right direction. As valuation remains high and investors are still concerned about the DOJ inquiry, it may be a while before shares start to rebound.
What Hindenburg’s Short Report Means For CLOV Stock
On Feb 4, vocal short-seller Hindenburg Research released a detailed report pointing out many issues with Clover Health Investments.
The biggest bombshell is the allegation that it failed to disclose an active inquiry by the DOJ for several of its aggressive business practices. These include payments to providers, as well as its patient recruitment efforts.
Clover quickly responded with a lengthy rebuttal published on Medium.com. Downplaying the severity of the inquiry, the company also fought back against the allegations made about its business practices.
Yet, while its rebuttal provides some answers to the questions raised by the short report, it has failed to reverse the recent declines. CLOV shares have continued to trend lower, and now trade for around $9.71 per share.
Buying The Dip Versus Waiting Things Out
Investors might not be assuaged by Clover’s response to the short report. That said, it’s possible that this turns out to be only a short-term issue. As time passes, shares could rebound as investors become more confident in its prospects.
With this in mind, buying now, as shares trade near their initial offering price, could prove to be a shrewd investment in hindsight.
However, beyond the overhang of the DOJ inquiry, valuation is another concern with CLOV stock. Trading at 6.7x trailing twelve-month sales, shares are still richly priced even when you take into account its projected sales growth.
In short, even with the short report weighing down shares, there isn’t much of an uncertainty discount with Clover. As the possibility of future gains is limited, it may not be worth it to dive in at today’s prices.
What Analysts Are Saying About CLOV Stock
According to TipRanks, Clover has a Moderate Buy consensus rating based on 1 Buy and 1 Hold. In terms of price targets, the average analyst price target on CLOV stock comes in at $17 per share, implying 75% upside potential from today’s prices. (See Clover stock analysis on TipRanks)
Bottom Line: Shares May Hold Steady Near-Term
Based on the information provided in its rebuttal, the allegations made about Clover by Hindenburg may have been overstated. Yet, with the stock still richly priced at today’s levels, investors should continue to be cautious about diving back into this SPAC healthcare play.
What does this mean? Unless it releases some game-changing news anytime soon, expect CLOV stock to remain depressed in the near-term.
Disclosure: Thomas Niel held no position in any of the stocks mentioned in this article at the time of publication.
Disclaimer: The information contained herein is for informational purposes only. Nothing in this article should be taken as a solicitation to purchase or sell securities.
