It's not a secret that every investor will make bad investments, from time to time. But serious investors should think long and hard about avoiding extreme losses. So we hope that those who held Clover Health Investments, Corp. (NASDAQ:CLOV) during the last year don't lose the lesson, in addition to the 74% hit to the value of their shares. That'd be enough to make even the strongest stomachs churn. Clover Health Investments hasn't been listed for long, so although we're wary of recent listings that perform poorly, it may still prove itself with time. More recently, the share price has dropped a further 33% in a month.
Given the past week has been tough on shareholders, let's investigate the fundamentals and see what we can learn.
Clover Health Investments isn't currently profitable, so most analysts would look to revenue growth to get an idea of how fast the underlying business is growing. Shareholders of unprofitable companies usually expect strong revenue growth. As you can imagine, fast revenue growth, when maintained, often leads to fast profit growth.
In the last twelve months, Clover Health Investments increased its revenue by 178%. That's well above most other pre-profit companies. So on the face of it we're really surprised to see the share price down 74% over twelve months. There's clearly something unusual going on here such as an acquisition that hasn't delivered expected profits. What is clear is that the market is not judging the company on its revenue growth right now. Of course, investors do over-react when they are stressed out, so the sell-off could be unjustifiably severe.
You can see how earnings and revenue have changed over time in the image below (click on the chart to see the exact values).
We like that insiders have been buying shares in the last twelve months. Having said that, most people consider earnings and revenue growth trends to be a more meaningful guide to the business. If you are thinking of buying or selling Clover Health Investments stock, you should check out this free report showing analyst profit forecasts.
A Different Perspective
We doubt Clover Health Investments shareholders are happy with the loss of 74% over twelve months. That falls short of the market, which lost 22%. That's disappointing, but it's worth keeping in mind that the market-wide selling wouldn't have helped. With the stock down 9.4% over the last three months, the market doesn't seem to believe that the company has solved all its problems. Given the relatively short history of this stock, we'd remain pretty wary until we see some strong business performance. I find it very interesting to look at share price over the long term as a proxy for business performance. But to truly gain insight, we need to consider other information, too. For instance, we've identified 2 warning signs for Clover Health Investments that you should be aware of.
If you like to buy stocks alongside management, then you might just love this free list of companies. (Hint: insiders have been buying them).
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on US exchanges.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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