Clover Health (NASDAQ:CLOV) was supposed to be one of Chamath Palihapitiya’s biggest special purpose acquisition company (SPAC) wins. When Palihapitiya announced plans to take Clover public, traders gravitated to the play as a natural fit. The idea? CLOV stock would upend the sleepy health insurance industry with a big dose of Silicon Valley expertise.

Except, it hasn’t worked. At all. Clover Health stumbled out of the gate. It failed to disclose a government investigation into its business. Shares dropped by nearly half as short sellers revealed that fact.

Subsequently, Clover has failed to recover. That’s primarily because it simply isn’t very good at its actual core business. Clover runs a dreadfully high medical loss ratio. This means its policy underwriting isn’t working; it’s paying out too many claims compared to the premiums it receives.

An insurance company that can’t make money on its policies will struggle to survive. You can have all the tech glitz and great user interfaces you want, but if the insurance product is no good, something has to change. CLOV stock is now down more than 75% for the past one year as analysts raise hard questions about its future.

CLOV Stock: Running Out of Time

Back in January, analyst Jonathan Yong of Credit Suisse downgraded CLOV stock from “neutral” to “underperform.” Yong took his already skeptical view to outright bearishness given Clover’s inability to get basic pieces of the business right.

For one thing, Yong is rightly concerned about Clover’s “continuous need” to raise capital. The balance sheet is not in particularly great shape and the company is running massive operating losses. Analysts see Clover losing 90 cents per share in 2022, which is a gigantic loss considering CLOV stock sells for less than $3 per share. Yong also points out how Clover Health simply hasn’t been able to make the needed improvements in its medical loss ratio, thus meaning there is little reason for optimism on earnings going forward.

Clover will have to issue more stock to stay in business if it keeps losing hundreds of millions of dollars a year. But with CLOV stock already below $3 and in a dismal downtrend, what investors would want to buy a secondary offering from the company today? This has massive stock dilution written all over it.

A Takeover May Be the Best Hope

Given this backdrop, it seems unlikely that Clover Health will remain an independent publicly traded company in future years. The company’s losses are too large and its capital base too thin to make a successful go of it from here. If Clover had issued a lot more equity up at $10 per share, it would be a different story. But given the stock has already collapsed, it would be incredibly painful to raise funds at current prices.

So, instead of remaining in a downward dilutive spiral, an easier solution would be for Clover to sell itself to a better-run insurance rival. Clover’s large user base is certainly worth something. The company hasn’t demonstrated much skill at writing insurance policies or managing risk, but it was able to build a platform that has created considerable customer attachment.

A smart move at this point would be for management to step aside and sell Clover to an insurance company that knows what it’s doing in terms of policy underwriting. The older insurance companies aren’t as good at technology and digital marketing. Because of that, there could be some synergies in combining Clover’s tech savviness with a traditional insurance firm.

Beware of the Dreaded Take-Under

It’s one thing to hope for a buyout if a company is in a position of strength. A firm that is doing well doesn’t have to rush to sell itself. In that sort of scenario, you get nice takeover premiums and potentially even bidding wars. When a company is in a slump, however, acquirers target it for opportunistic bids. When another player sees a rival up against the ropes, it can come in with a lowball offer and carry the day.

Followers of Palihapitiya may already be well aware of this phenomenon. Back in 2020, Palihapitiya tweeted “Buffett had Geico. I pick Metromile.” The investor was referring to auto insurance firm Metromile (NASDAQ:MILE), which went public via a SPAC. Unfortunately for him, Metromile wasn’t in the same galaxy as Geico as far as insurance businesses go.

Just a year later, MILE stock had collapsed and the business’ viability was in doubt. It eventually got a takeover bid from another “disruptive” insurance company, Lemonade (NYSE:LMND). Lemonade offered Metromile shareholders shares of Lemonade’s own rapidly collapsing stock, leading to what appears to be a lose-lose scenario for both parties. MILE stock has plunged 90% since its SPAC deal was executed and over 50% since the Lemonade takeover was announced.

Will Palihapitiya’s disruptive health insurance company meet the same fate as his pick in auto insurance? It’s certainly looking like a possibility. With Clover’s terrible operating results and uninspiring balance sheet, all options have to be on the table simply to keep the business afloat.

The Verdict on Clover Health

At this point, it’s frankly disappointing to read social media discussions around CLOV stock. A fair number of people are still hoping for a short squeeze. However, that train left the station months ago. Clover’s short interest has been declining as bears lock in profits.

The fact simply is that Clover’s insurance underwriting wasn’t good enough to make it in this highly competitive industry. What’s more, the company’s focus on growth at all costs led it to lose too much money too quickly. That has taken away its chance at a turnaround.

The best hope for CLOV stock now is a takeover. But even that will hardly be a slam dunk. Just look at Metromile for a perfect example of what happens to failing Palihapitiya SPAC deals.

On the date of publication, Ian Bezek did not hold (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.

Ian Bezek has written more than 1,000 articles for InvestorPlace.com and Seeking Alpha. He also worked as a Junior Analyst for Kerrisdale Capital, a $300 million New York City-based hedge fund. You can reach him on Twitter at @irbezek.