• Clover Health (CLOV) stock has continued to weaken in a weak market
• Its technology looks sound, but it lacks the scale to succeed
• When fear replaces greed, run away from speculation

Clover Health (NASDAQ:CLOV) stock can’t do well in the present stock market environment.

Shares are down 22% since the start of the year, against an S&P 500 fall of 6.5%. With quality on sale and failing to get a bid, a money-losing Medicare Advantage player has little chance.

The problems aren’t unique to Clover. All “health insurtechs,” financial technology companies focused on health insurance, are in trouble. 

There is a legitimate opportunity here. As I wrote in January, the company’s Clover Assistant software can cut costs by maintaining online contact with patients and controlling chronic conditions like diabetes. Clover may just lack the financial runway to achieve liftoff. The company had about $300 million in cash at the end of 2021 and lost $588 million during the year.

The Setup

Cutting losses is essential to survival. Analysts don’t think they will be cut enough when the company next reports on May 9. A loss of 24 cents/share is expected, which works out to about $100 million. 

Like a tragic hero, Clover walks a tightrope between its promise and its back story.

The back story involves Vivek Garipalli, a New Jersey hospital owner accused of scamming the government’s Medicare and Medicaid programs. All this was detailed in a Hindenburg Research report, over a year ago. 

Its promise is represented by Andrew Toy, a former Alphabet (NASDAQ:GOOGL, NASDAQ:GOOG) executive who is now the face of the company. Toy offers customers tablet computers that deliver telehealth services. He has hired a former Google product manager as his new chief technology officer.

The software attracted 80,000 Medicare Advantage customers for this year, beating out larger rivals like Humana (NYSE:HUM) and Cigna (NYSE:CI). (The company also has about 50,000 direct customers.) The problem is that Clover may lack the scale needed to turn a profit.

Optimism Remains

There remain many analysts predicting a rebound, including here at InvestorPlace.

Our Nicholas Chahine is predicting a bullish victory for the stock. Shares opened April 25 at $2.89, a market capitalization of just $1.36 billion, less than the 2021 revenue of $1.47 billion. The charts look good and there’s not much more you can lose.

In this scenario, Clover could be bought by one of the big health insurers or even Alphabet, which could scale the offering using Toy’s technology. Will Ashworth has suggested that data collected by Clover Assistant could have tremendous economic value, both to Clover and its patients.

Faizan Farooque liked Clover’s fourth-quarter report. His only concern on March 28 was the stock’s price.  Subsequent trading has fixed that. The stock is down 20% in April.

This made Chris Tyler suggest buying CLOV stock.  The end of “meme stock chatter” around the name, along with improving cost ratios, should let serious investors in with a chance for long-term gains.

The Bottom Line

I have two concerns.

First, Clover needs capital to be credible for 2023. In theory it has room to take on debt, with only $25 million of it on the books at year-end. But with interest rates rising even for good credits, that may not be possible. It could also sell more stock, but that would water down existing shareholders.

Second is the general health care set-up. It’s bad. Covid-19 has the whole system on life support, and the political situation isn’t supportive of more money coming in. Reform is needed, but we’re more likely to get mass denial of care right now.

Clover’s technology may be great, but Google won’t jump in until Clover’s finances remove political opposition. That means Toy will land on his feet, but your investment? I don’t see it.

On the date of publication, Dana Blankenhorn held a long position in GOOGL. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.