Clover Health Investments (NASDAQ:CLOV) recently reported Q1 revenue and earnings on May 17. The numbers weren’t particularly thrilling for CLOV stockholders.
On May 13 I wrote that the Medicare Advantage insurer would likely report 21% higher revenue year-over-year. But I also cautioned that CLOV stock was unlikely to move much higher given its continuing losses.
The bottom line is that CLOV stock is not exciting, at least right now. The stock hasn’t moved much since I last wrote about it, and I think that will continue to be the case.
Clover Health Financial Results
Here is what happened. Clover Health announced that revenue was indeed 21% higher than a year ago.
However, ongoing EBITDA (earnings before interest, taxes, depreciation, and amortization) losses on an adjusted basis were negative $76.2 million. That was significantly higher than the past year’s $21.7 million in losses.
In addition, the company also said that GAAP MCR (Medicare Care Ratio) had worsened to 107.6% from 89% a year ago. This essentially means that its insurance-related expenses presently exceed revenue — and that’s with higher revenue.
However, Clover Health also reported that its “normalized” MCR is now 95.4%. This indicates that the company is profitable on some “normalized” non-GAAP basis.
But here is the real clincher, why I don’t think Clover Health stock will move much. It gave guidance for the full-year 2021 revenue. It said that revenue for the year would be in the range of $810 to $830 million. However, last quarter the company said it expected revenues would be in the range of $820 to $850 million. In other words, now it expects $10 to $20 million less.
What Clover Health Is Worth
That’s not the way things should be going for an alleged growth stock.
Keep in mind that at its present $3.35 billion market cap, CLOV stock trades for 4 times revenue. At such a huge valuation metric the company should be posting revenue guidance that is higher than its prior guidance, not lower.
My feeling is that with this lower guidance, the stock should have a lower price-to-sales metric. Here is how I would do that. For next year, analysts expect Clover Health will produce over $1 billion in sales. ($1.07 billion according to Seeking Alpha).
So putting a lower price-to-sales (P/S) multiple on that, of say 3 times, gives Clover Health a target market cap of just $3.21 billion. That is 4.2% lower than its present $3.35 billion market value today at $8.20. That implies that CLOV stock is worth $7.86 per share.
In other words, don’t expect to see Clover Health stock make any major move higher, at least until it can show it is profitable. But I don’t see that happening anytime soon.
What To Do With CLOV Stock
The problem here is that analysts seem overly enamored with Clover Health. For example, TipRanks reports that 4 analysts have an average price target of $9.50 per share, or 16% higher. In addition, Seeking Alpha indicates that 3 analysts have written that the stock is worth $9.33 per share. Yahoo! Finance also reports that 2 analysts have an average price target of $9.50.
I just can’t bring myself to think that a money-losing insurer with little growth and lower guidance is really worth more than 4 times sales, which is what analysts are implying with their valuations. My analysis is actually being quite generous, giving it a 3 times value at my target price of $7.86.
My guess is that if Clover lowers its projections again like it did this quarter, CLOV stock will trend lower. Most cautious investors won’t stick around for that to happen. They will likely wait for some bargain element to appear.
On the date of publication, Mark R. Hake did not hold a position in any security mentioned in the article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Mark Hake writes about personal finance on mrhake.medium.com and runs the Total Yield Value Guide which you can review here.