As one of the most widely followed SPAC offerings this year, Clover Health (NASDAQ:CLOV) has not exactly set the world on fire. After debuting on Jan. 8, the stock has mostly drifted downward with the exception of a short-term trading boost earlier this summer. CLOV stock currently has a $3.4 billion market capitalization and $412 million in revenue in its most recent quarter. The company claims to have approximately 129,000 lives under management.

Clover Health is a Medicare Advantage insurance company that was founded in 2014. It offers insurance through its technology platform called Clover Assistant. The company uses its proprietary software platform to collect, structure and analyze health and behavioral data to lower costs for patients and customers.

The Value of CLOV Stock

Today about 24 million out of 62 million Medicare beneficiaries are enrolled in some type of Medicare Advantage plan. The U.S. Census Bureau calls the 2030s a “transformative decade for the U.S. population,” with the population over 65 estimated to reach 77 million by 2034. It’s a very large potential market, and capturing even a small amount of the market share could lead to a profitable and growing business model if medical costs are kept under control.

The all-important Medical Care Ratio (MCR) came in at 111% during Clover’s second quarter. MCR is essentially the gross profit ratio for healthcare insurance companies. The company claims that direct Covid-19 related costs and excess utilization due to Covid-19 accounted for 8.2% of its MCR, and therefore the ratio is abnormally high.

But the delta variant was and is prevalent in the third quarter, so Covid-19 costs should also be high and perhaps “normal” in the Q3. Further, Covid-19 healthcare issues including hospitalization and deaths will likely be with us forever as we learn to live with it. So perhaps Covid-19 costs should always be included in normalized MCR going forward.

Clover Health also updated it 2021 guidance. This includes total revenues in the range of $1.4 billion to $1.5 billion consisting of about $775 million on Medicare Advantage revenues and Medicare Direct Contracting revenues of approximately $675 million. MA membership is expected to be in the range of 68,000 to 70,000 by the end of this year. Normalized adjusted non-GAAP EBITDA is expected to exceed $200 million in losses. It is often a red flag when a company expects investors to rely on something that is “adjusted” and “normalized”, and of course eventually — “Non-GAAP”.

As of the second quarter, the company had $630 million in cash and investments on the balance sheet. Total liabilities were $901 million against total assets of $1.2 billion. The net loss for the first 6 months of 2021 was approximately $366 million. If this carries on the remainder of year, half of Clover Health’s cash positions will be eaten away. There will almost certainly be a burn rate in 2022. How much, though, is hard to determine. The factors involved in such a complex, regulated, medically driven type business along with a relatively new business model makes accurate forecasts very difficult.

“The Obvious Choice”

One of the bothersome things about the company in my humble opinion is the use of the word “obvious”. The company loves to call itself “the obvious choice for Medicare-eligible consumers” in SEC filings and elsewhere. This refers the company’s believe that they are the only reasonable choice for the elderly to go with when selecting a Medicare Advantage plan due to their plans low cost, choice of provider and the Clover Assistant AI technology.

Putting aside the apparent corporate arrogance of that “obvious” belief statement which is insulting to the elderly who choose another company, this sort of language is unsurprising from a SPAC sponsored by Chamath Palihapitiya. He has been noted often for his pompous and hype-driven style of doing business and investing.

It’s somewhat pointless to attempt to derive a fair value calculation for CLOV stock because it is highly likely they will have to access the capital markets next year sometime. So it may be best to wait to see what type of dilution occurs when that happens. And what if the capital markets effectively shut down like that did in 2008? Then all bets are off.

I’ll stick to the ongoing theme by many investment commentators and analysts that most SPACs associated with Chamath Palihapitiya are bad deals and will likely go nowhere. He already has his money, but long-term investors may not get theirs.

My target price for CLOV stock is zero, or at least very close to it.

On the date of publication, Tom Kerr 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.

Tom Kerr has worked in the financial services industry for over 25 years. Mr. Kerr has also been a contributing writer to TheStreet.com, RagingBull.com and InvestorPlace.com. He’s a CFA charterholder and obtained a B.B.A in Finance from Texas Tech University. He also created the 406dad.com kids adventure blog.