The entire healthcare sector, ranging from drugstores to biotech companies, has strived to survive the COVID-19 pandemic by inventing vaccines and providing people with protection equipment and safe healthcare facilities. And because several countries are now experiencing a resurgence of COVID-19 infections, the healthcare sector is expected to play a significant role this year again. In fact, the sector has immense potential to grow beyond this year thanks to technological advancements and a growing need for better healthcare products and facilities. The global healthcare IT market is projected to grow at a 14% CAGR over the next eight years.
Vanguard Health Care Index Fund ETF’s (VHT) 27.8% returns over the past year reflect significant investor interest in the sector. However, not all stocks in this space have gained because of a favorable industry backdrop. Reddit’s WallStreetBets (WSB)—which captured headlines thanks to its participants' huge success in squeezing short sellers out of their positions in GameStop (GME) earlier this year—gamed weak players with high short interest in the healthcare space too.
But WBS favorites Clover Health Investments, Corp. (CLOV) and COMPASS Pathways plc (CMPS) have lost significant value lately and could witness further declines. Given their high valuations versus their financial strength, or lack thereof, we think that these stocks are best avoided now.
Click here to checkout our Healthcare Sector Report for 2021
Clover Health Investments, Corp. (CLOV)
CLOV is a healthcare technology and insurance service company in the United States. It provides Preferred Provider Organization (PPO) and Health Maintenance Organization (HMO) health plans to eligible consumers, through its Clover Assistant software platform. Its Medicare plans include hospital coverage, doctor visits, and drug coverage.
In February, Hindenburg Research published a report that revealed that Clover Assistant is under investigation for alleged illegal kickbacks and marketing practices and undisclosed related-party transactions. And on April 6, Kaskela Law LLC filed a lawsuit against CLOV on behalf of CLOV’s shareholders.
In March, CLOV partnered with Advance’s content marketing division, Headline Studio, to launch Clover Living magazine Scheduled to be published every quarter, the magazine will include health advice and lifestyle choices for senior citizens. The company hopes to expand its market reach with its quality content.
CLOV is scheduled to release its fiscal 2021 first quarter results on May 17, 2021, before the market opens. CLOV’s loss from operations was $68.63 million for the fourth quarter, ended December 31, 2020, which represents an increase of 13.1% versus the fourth quarter of 2019. The company’s net loss increased 3.7% year-over-year to $81.58 million. CLOV’s total assets decreased 20.7% year-over-year to $267.25 million as of December 31, 2020. Also, its total liabilities increased 2.7% year-over-year to $387.89 million.
Analysts expect the company’s EPS to be negative for its fiscal year 2021. CLOV has lost 25.4% over the past three months. It ended yesterday’s trading session at $10.50, which is 39.8% below its 52-week high.
It’s no surprise that CLOV has an overall F rating, which equates to Strong Sell in our POWR Ratings system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
The stock has an F grade for Sentiment, and a D grade for Growth, Value, and Stability. We have also graded CLOV for Momentum, and Quality. Click here to access all CLOV’s ratings.
CLOV is ranked #11 of 11 stocks in the B-rated Medical - Health Insurance industry.
COMPASS Pathways plc (CMPS)
Incorporated in 2020, CMPS operates as a mental health care company in the United Kingdom and the United States. Focused on treatment-resistant depression (TRD), CMPS is developing COMP360, a psilocybin formulation to treat patients with treatment-resistant depression. The therapy is now in Phase IIb clinical trials. On April 27, CMPS launched a public offering of 4 million American Depositary Shares (ADSs), each representing one ordinary share. An on April 14,a study of CPMS’ COMP360 was published in the New England Journal of Medicine (NEJM) that reported positive indications in COMP360 psilocybin compared with the standard antidepressant escitalopram for major depressive disorder (MDD). “This study further supports the need for additional clinical investigations in larger, well-powered studies to more accurately determine the efficacy of COMP360 psilocybin in MDD”, said George Goldsmith, CEO and Co-founder of CMPS.
In March, CMPS was granted two new patents by the U.S. Patent and Trademark Office (USPTO). These patents claim oral formulations of CMPS’ synthetic psilocybin in the treatment of major depressive disorder (MDD), which includes treatment-resistant depression (TRD). The company hopes to continue with the highest quality clinical research and bring potentially life-changing care to patients who might benefit from this therapy.
For the fourth quarter, ended December 31, 2020, CMPS’ net loss was $18.80 million, up 153.4% from the year-ago period. Its loss per share was $0.52. The company’s general and administrative expenses came in at $7 million, which represented a 150% year-over-year decline. Its total liabilities and shareholders’ equity has increased 528.2% year-over-year to $203.46 million as of December 31, 2020. Also, it had $190.30 million in cash and cash equivalents.
Analysts expect the company’s EPS to be negative for its fiscal year 2021. CMPS has lost 18.3% over the past three months. It ended yesterday’s trading session at $35.92, which is 41.8% below its 52-week high of $61.69.
CMPS’ POWR Ratings are consistent with this bleak outlook. The stock has an overall D rating, which equates to Sell.
The stock also has a D grade for Momentum and Quality. In addition to the POWR Ratings grades we’ve just highlighted, one can see CMPS’ ratings for Value, Growth, Stability, and Sentiment here.
CMPS’ is ranked #150 of 235 stocks in the F-rated Medical - Pharmaceuticals industry.
Click here to checkout our Healthcare Sector Report for 2021
CLOV shares were trading at $10.15 per share on Thursday afternoon, down $0.35 (-3.33%). Year-to-date, CLOV has declined -39.48%, versus a 12.67% rise in the benchmark S&P 500 index during the same period.
About the Author: Sweta Vijayan
Sweta is an investment analyst and journalist with a special interest in finding market inefficiencies. She’s passionate about educating investors, so that they may find success in the stock market.
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