Clover Well being (NASDAQ:CLOV)has change into embattled following its latest IPO. The allegations made in opposition to the corporate by short-selling agency Hindenburg Analysis over a month in the past will proceed to hold round till an official judgment has been made about them. Traders should take into account that earlier than deciding to take any place in CLOV inventory.
Extra lately, Clover Well being launched its full-year outcomes. I’ll dive into a few of the numbers underpinning the corporate first, and I’ll focus on the allegations afterwards.
An Inauspicious Begin
Clover Well being formally turned publicly listed on Jan. 8. The corporate’s inventory went public on account of Clover’s merger with a SPAC referred to as Social Capital Hedosophia Holdings.
Clover has been on a downhill experience ever since. Its shares started buying and selling for $15.90 and have subsequently steadily dropped. The one exception was just a few temporary retracements. CLOV inventory closed yesterday at $7.82.
As former Goldman Sachs CEO Lloyd Blankenfein notes, SPACs don’t undergo the same rigorous vetting that firms present process conventional IPOs do. Maybe a conventional IPO would have unearthed a few of the pink flags about Clover earlier than the transaction was accomplished or maybe not.
However I’d be prepared to guess that much less cash would move into SPACs if their merger companions had been vetted as a lot as firms present process the IPO course of. Additional, the returns of post-IPO shares are increased, on common, than the shares of firms which have merged with SPACs.
The corporate’s monetary outcomes did point out that its enterprise had improved.
In 2020, its income elevated to $672.9 million from $462.3 million in 2019. Clover Well being’s 2020 internet loss got here in at $91.6 million, means down from $363.7 million in 2019. And its EBITDA (earnings earlier than curiosity, tax, depreciation, and amortization), excluding some objects, went from -$175.5 million in 2019 to -$74.4 million final 12 months.
Clover Well being reported that it had 58,056 members on Dec. 31, 2020. The corporate expects that metric to succeed in 68,000-70,000 by the top of 2021. This 12 months, Clover anticipates that its prime line can be $820 million-$850 million, versus $672.9 million in 2020.
But the corporate nonetheless anticipates that its adjusted EBITDA can be within the pink this 12 months, coming in between -$190 and -$150 million.
Clover’s EBITDA Outlook Hasn’t Improved A lot
Again in October, Clover reported that its 2018 and 2019 adjusted EBITDA losses had been $177 million and $175 million, respectively. It’s predicting now that its 2021 adjusted EBITDA loss at greatest, can be barely above these ranges and at worse can be decrease.
In October, Clover Well being mentioned that it anticipated its adjusted EBITDA margin to change into constructive in 2023. However maybe the latest allegations in opposition to it should delay that milestone.
It’s exhausting to grasp why buyers would need to purchase CLOV inventory when the insurer received’t be worthwhile for a while. In my view, Medicare Benefit well being plans aren’t precisely probably the most interesting product.
That was true earlier than all of the allegations in opposition to Clover had been made lately, and it’s doubly true now that Clover Well being has needed to fight all of those prices. One other InvestorPlace columnist, Larry Ramer, did a good job of summarizing the principle prices in opposition to the corporate.
The Verdict on CLOV Inventory
Traders ought to stay extremely skeptical of SPACs. The reality is that they warrant further scrutiny and that many buyers who purchased their shares are dropping an excessive amount of cash on them.
I don’t know what’s going to occur to Clover Well being on account of the allegations in opposition to it. However some harm seems to have already got been accomplished. And there’s no logical cause to purchase CLOV inventory now, given Clover Well being’s profitability points and its tarnished picture.
On the date of publication, Alex Sirois didn’t have (both straight or not directly) any positions within the securities talked about on this article.