Here’s why Clover Health stock price spiked after earnings

Clover Health (NASDAQ: CLOV) stock price went parabolic on Wednesday as investors cheered the company’s financial results, forward guidance, and share repurchase program. It surged by over 18%, its best daily performance since August last year.

Clover Health, a former meme stock, published strong results as it moved towards profitability. Its total revenue rose to over $346 million in the quarter, higher than the $321 million it made in the same period in 2023.

Most importantly, the company had its first adjusted EBITDA profit ever as it rose to $6.8 million. Also, it continued to narrow its net loss, which came in at $19 million, an improvement from the $72 million it made in Q1’23.

The company hopes that its business will continue doing well this year. It boosted its revenue guidance to between $1.30 billion and $1.35 billion. Before that, its guidance was between $1.25 billion and $1.30 billion. Its adjusted EBITDA will be between $10 million and $30 million. 

Still, there is one key concern to be aware of as the company authorised a $20 million share repurchase program. Stock buybacks are always welcome since they reduce the number of outstanding shares and boost earnings per share.

Like with dividends, most companies repurchase their shares using their free cash flow. While Clover is expected to narrow its net loss this year, it is not expected to be cash flow positive. As such, I believe that the firm should have waited to constantly become profitable before repurchasing its stock.

I warned the same about Mullen Automotive, an embattled electric vehicle company that implemented a $25 million share repurchase program last year. Its stock has crashed by over 50% this year alone.

For starters, Clover Health is a company that helps people shop for Medicare Advantage plans at a lower cost. It also owns Clover Assistant, which helps physicians to detect, identify, and manage chronic diseases earlier.  It also has a non-insurance business in the Accountable Care Organisation Realising Equity, Access, and Community Health (ACO REACH) model that was started in 2023.

Clover Health became popular in 2021 as it became one of the top meme stocks. At the time, its stock surged to $28.8, giving it a market cap of over $7 billion. Today, its valuation has slumped to just $366 million.

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