Health insurance company Clover Health (NASDAQ:CLOV) is on a mission to lower costs for Medicare patients. So far, it is spending more money than it brings in. Additionally, activist short-seller Hindenburg Research released a scathing report that criticizes its business model and the quality of its software. As a result, CLOV stock is incredibly volatile and has remarkably high short interest.

CLOV stock has been on a negative run since it began trading in January. The stock has lost nearly 50% of its value in the past seven months.

The retail trading crowd has gotten behind it, though, which has led to a few sparks in its value. It traded as high as $28.85 in June. But despite the weakness in its price, CLOV stock is trading at a premium compared to its future outlook, fundamentals and other risks.

CLOV Stock Has Weak Fundamentals

Forming a complete picture of Clover Health’s outlook solely based on Hindenburg Research’s report would be unfair. Even if the report is completely accurate, it’s always best to assess a business objectively by looking at its financials.

Clover Health’s first-quarter results indicate that the company’s revenues are growing. In Q1, revenue was $200 million, which is up more than 21% from the same period last year.

However, a more important metric for the company is its Medical Care Ratio (MCR). MCR is calculated by dividing net expenses from medical claims by earned premiums.

As mentioned previously, Clover Health’s Q1 2021 MCR was a whopping 107%, which essentially means it’s spending more than it’s making. The company’s management has stated that the pandemic led to a massive increase in inpatient costs.

But even as we get closer to a post-pandemic reality, Clover Health’s MCR is high. If the business cannot control its ratio, its bottom line will continue to tank with every passing quarter. The company saw a net loss of $48 million in its most recent quarter. That’s 72% higher than Clover Health’s net loss during the prior-year period.

Other Risks of Clover Health

Apart from its weak financials, Clover Health has other risks that need to be considered. First of all, its user base is not up to scratch. It’s far from where it needs to separate itself from the pack.

Clover Health’s users are healthcare providers, and as of last December, only 2,400 of them were using its Clover Assistant Platform. That’s hardly an impressive number considering its lofty market valuation of more than $3.6 billion.

Furthermore, Clover Health promotes its platform as unique and has been described as a disruptor in the healthcare realm. However, many top health insurance providers are software-intensive and have developed similar data analytics and diagnostic technologies. Therefore, it’s tough to get excited about Clover Health when many industry stalwarts are investing heavily in their software platforms and have had more success so far.

Additionally, Clover Health’s financials hardly exhibit the metrics of a tech company. For instance, there is no separate disclosure of the company’s R&D expenditures, which is common for a tech company.

The Bottom Line on CLOV Stock       

CLOV stock has had a topsy turvy run since it became a publicly listed company back in January. It has now become a meme stock and is remarkably expensive in comparison to its peers.

So far, its financial performance has been forgettable, and its software platform has not been able to gain substantial traction. As a result, it’s tough to invest in CLOV stock at this point.

On the date of publication, Muslim Farooque did not have (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

Muslim Farooque is a keen investor and an optimist at heart. A life-long gamer and tech enthusiast, he has a particular affinity for analyzing technology stocks. Muslim holds a bachelor’s of science degree in applied accounting from Oxford Brookes University.