Clover Health Investments Stock Is a Gamble on Two Different Fronts

Go ahead and browse any investment-related social media forum and you’ll quickly discover that Clover Health Investments (NASDAQ:CLOV) stock has a very strong following.

I’m not suggesting it’s a meme trade (which has become a controversial term), but CLOV stock certainly has meme-ish attributes. Is that alone enough to justify more than a gander with Clover?

If you were assessing CLOV stock based purely on the underlying business, it’s not difficult to see why so many folks bet on it.

As our own Faizan Farooque stated, the company’s proprietary Clover Assistant platform “uses artificial intelligence (AI) technology to gather millions of relevant health data points, including claims, medical charts, and diagnostics, among other metrics.”

Combine this with Clover Assistant’s ability to “collect, structure, and analyze health and behavioral data” and the company can help improve medical outcomes and lower the financial burden for patients, a true double whammy.

As Farooque explained further, “By analyzing large data pools, it can recognize trends and identify early indicators of potentially expensive outcomes. If the company’s AI is able to successfully identify and address conditions before they result in enormous hospital bills, the company’s cost savings will be huge.”

On that basis, CLOV stock sounds incredibly intriguing. But then, between July 19 and Aug. 11 of this year, shares have been largely flat. It’s very possible that investors have been turned off by CLOV’s volatility.

At one point in June, shares reached an intraday peak of nearly $29 before tumbling to single-digit territory heading into its second quarter of 2021 earnings report.

Honestly, Q2 couldn’t have come at a better time. With total revenue of $412 million up 140% year-over-year, the disclosure sent CLOV stock up over 15% in after-hours trading. But is it enough to take a shot with this incredibly wild healthcare play?

CLOV Stock Intrigues

Sometimes you just need one great report to change the narrative of a publicly-traded company and that might be the case for CLOV stock. Breaking down the total revenue haul for Q2, the company enjoyed “$195.4 million in Medicare Advantage premiums and $216.4 million in Direct Contracting revenue.”

In addition, Clover Health’s corporate statement revealed that, “Total lives under Clover management at quarter end was approximately 129,000, an increase of 126.3% compared to June 30, 2020. Medicare Advantage membership and Direct Contracting lives were 66,566 and 62,025, respectively, as of June 30, 2021.”

Finally, after months of stomach-churning losses for CLOV stock, stakeholders have something to cheer about. Not only that, Clover might receive a political boost.

Under the Democrats’ $3.5 trillion budget plan, those on the left are seeking Medicare expansion and a lower eligibility age. For what it’s worth, President Biden supports age 60 as the threshold.

If so, that would greatly augment Clover’s addressable market, tapping into the younger spectrum of the sizable baby boomer generation much quicker. Though enticing as it is, prospective investors should still exercise caution.

First and foremost, there’s no guarantee that Medicare expansion will occur. We’re living in a politically contentious time so nothing can be taken for granted. Further, if the masses are banking on the lower age threshold, an unfavorable outcome could see CLOV stock take a beating.

Second, Farooque points out that Clover isn’t unique in its offerings, stating that “Clover’s peers also have data-focused technology similar to that of Clover Health.”

Citing UnitedHealth (NYSE:UNH), my InvestorPlace colleague noted that the company “uses software to track patient data and clinical visits. Proprietary predictive modeling tools help identify high-risk individuals and create individualized care plans.”

Clover Is Only For the Gambling Type

Presently, CLOV stock features a lot of unknowns. While the company’s Q2 earnings report was impressive, it remains to be seen if it can fend off the competition. The political angle will surely attract new speculators but the influx of so-called weak hands will be problematic if the news cycle goes awry.

Perhaps that’s the biggest challenge for CLOV stock. As its pricing history shows, it’s highly dependent on news and rumors. That makes it appropriate for short-term swing trades but is a much less comfortable proposition for buy-and-hold types.

That’s not to say that you can’t make money from Clover because you clearly can. It all depends on your investing strategy. If you can handle the risk, there might be something here. If not, you’re probably better served looking elsewhere.

On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare.