Clover Health (CLOV) Stock Outlook Amid Reddit Short Squeeze 2.0

Clover Health stock is surging in what looks like a short squeeze 2.0. How high can CLOV stock go and can Reddit traders take it to the "moon"?

Mohit Oberoi, CFA - Author

Jun. 8 2021, Published 8:19 a.m. ET

Women looking at a tablet and Clover Health logo
Source: Clover Health Facebook

Clover Health (CLOV) stock, which went public with a SPAC sponsored by Chamath Palihapitiya, has been a Reddit favorite lately. The stock rose over 32 percent on June 7 and was sharply higher on June 8. How high can CLOV stock go amid the short squeeze 2.0 triggered by Reddit group WallStreetBets?

Article continues below advertisement
Article continues below advertisement

This is WallStreetBets’ second attempt at pumping CLOV stock and it has been more successful this time. The stock has more than doubled from the all-time lows that it hit after Hindenburg Research accused it of fraud. CLOV was the only SPAC sponsored by Palihapitiya that was trading below the IPO price of $10.

Clover Health stock on Reddit

While the “market” didn't see value in Clover Health stock, Reddit “ninjas” did. Currently, the stock is the most popular name on WallStreetBets. The group successfully took AMC Entertainment stock higher even though its valuations might be at odds with all of the analysts covering the stock.

Article continues below advertisement

CLOV stock: WallStreetBets versus Wall Street

Meanwhile, CLOV stock could be a rare example where WallStreetBets and Wall Street had similar views. While most of the stocks pumped by Reddit groups were trading above their target prices, CLOV was an exception. After the rally on June 8, the stock now trades 11 percent above its consensus target price, according to the estimates compiled by MarketBeat.

Article continues below advertisement
Article continues below advertisement

CLOV stock might be undervalued.

Also, while a lot of Reddit stocks look way too overvalued, that isn't the case with CLOV stock. The company has an EV (enterprise value) of around $4.5 billion and expects to generate revenues of $1.7 billion in 2023, which would mean a 2023 EV-to-sales multiple of 2.6x. The multiples look reasonable based on the strong growth trajectory for Clover Health.

Article continues below advertisement

In 2021, Clover Health expects to generate revenues between $810 million and $830 million, which would mean a 2021 EV-to-sales multiple of 5.5x at the midpoint. It's worth noting that the forecast for 2021 is below the $880 million that was provided at the time of the merger.

Article continues below advertisement

Looking at the long-term picture, the expected increase in Medicare penetration is an opportunity for the company. According to Clover Health, Medicare Advantage spending in the U.S. was $270 billion in 2019, which is expected to more than double to $590 billion by 2025.

Article continues below advertisement
clover health clov stock price
Source: TIKR

Clover Health short squeeze 2.0

The short interest in Clover Health stock has risen sharply. According to data from Fintel, over 39 million CLOV shares were sold short on June 7, which was almost 32 percent of the volumes on that day.

Article continues below advertisement
Article continues below advertisement

In contrast, fewer than a million CLOV shares were sold short on May 26, while the short volume ratio was around 11.2 percent. Looking at the high short interest in CLOV stock, Reddit groups might be able to trigger a short squeeze 2.0.

How high can CLOV stock go?

Reddit groups literally took AMC stock to the moon. Now, when short squeezes and sentiments drive price action, it becomes tough to predict how high an asset goes. However, at least for now, CLOV’s stock prices don't look out of sync with its fundamentals. Given the fact that a lot of Reddit names have run far ahead of their fundamental values, it won't be surprising to see CLOV stock rising higher from these levels.


Latest Financial Analysis News and Updates

    Opt-out of personalized ads

    © Copyright 2024 Market Realist. Market Realist is a registered trademark. All Rights Reserved. People may receive compensation for some links to products and services on this website. Offers may be subject to change without notice.