The special purpose acquisition company (SPAC) craze has reached epic proportions. Today we examine Clover Health (NASDAQ:CLOV) stock, which went public by merging with Social Capital Hedosophia, a blank check company that existed solely to find investments like this.
Further, I can say “it’s a Chamath company” and most would know I mean. Chamath Palihapitiya is a billionaire investor who has his fingers in a lot of SPAC ventures.
CLOV stock is one of them and it’s been controversial to say the least.
The stock rallied 60% this year, only to crash back down 64% in two months. It finally bottomed in March and rallied 90% to yesterday’s high. To grasp the level of violence in this stock, the Thursday low was 16% below the day’s high. Clearly you need a helmet and Dramamine in order to trade such crazy action.
CLOV Stock Has Its Own Merits
The sad thing is that the company has merit on a fundamental basis, but these wild swings make it nearly impossible for normal investors to participate. There is a lot of room in the healthcare sector for new services like this one. The company has made strides in expanding into new areas. Left alone, it has a good chance of success. But the ride in the CLOV stock will continue to be bumpy.
The problem is that it’s part of the Reddit armory. Wall Street is in a battle with Main Street investors, many of whom are involved on Reddit forums. Both sides are pulling in different directions and in the middle is CLOV stock.
It’s not alone — two other famous ones are GameStop (NYSE:GME) and AMC (NYSE:AMC). They are the weapons in this battle. There is tremendous contention around these names.
There’s absolutely no reason why a stock should move that much this fast without material changes. Clover draws headlines, but many center around lawsuits. These stem from a report from Hindenburg Research accusing them of wrongdoing. Their accusations revolve around disclosures.
I am not a legal expert, but I speculate that the accusations don’t change the actual business opportunity at hand. Most likely the outcome of failure to disclose could result in a fine to move past it. This is not a Theranos situation where the business was a sham.
The Hindenburg Report Is Immaterial Long Term
You can’t blame the report for the entire CLOV stock crash. The slide started in January and the headline didn’t post until a month later. I find extreme actions are almost never correct, the buyers were wrong chasing it at $17 per share. Much the same the sellers were wrong selling it under $7. The experts have diverging opinions but somewhere in the middle will lie the truth.
Luckily, the stock price is low in absolute terms. At about $10 per share, it’s reasonable to risk a little bit and have fun with it. Those who completely believe in the long-term success of this company should just ignore the short-term gyrations. But it’s also a viable trading opportunity, as it is an active stock. Either way, we should know that we will face extreme volatility. Therefore the size of the risk should stay small enough to not break the bank.
Medical coverage is a huge expense in most households. But it’s a necessary evil because there is no way to cover the cost out of pocket. Nobody wants to plan for sickness, but when it hits, it’s a financial disaster without insurance. It won’t be hard for Clover Health to find subscribers. Therefore management is more than likely going to succeed with this expansion plans. Shorting the stock because of someone’s research on the procedural hiccup makes no sense at this stage. The long term upside scenario in CLOV stock is more likely than failure.
On the date of publication, Nicolas Chahine did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Nicolas Chahine is the managing director of SellSpreads.com.