Clover Health: Short Squeeze Fears Look Overblown

A data error appears to be at the heart of the health insurance company's supposedly massive short interest

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John Engle
Apr 19, 2021
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On April 16, a number of financial media outlets reported on the apparent explosive increase of the short interest in Clover Health Investments Corp. (CLOV), potentially setting the stage for a short squeeze akin to those that burned investors with bearish bets on GameStop Corp. (GME) and AMC Entertainment Holdings Inc. (AMC) earlier this year.

I previously discussed the Clover Health story in a GuruFocus, citing those prior short squeezes as a reason for bearish investors to approach the name with caution. However, it now appears that the short interest in Clover Health is far less pronounced than many first believed. That may change the calculations for some investors and traders still skeptical of the richly valued tech-forward health insurance company.

Data error sparks anxiety

Analysts and commentators began looking askance at Clover Health before the market opened on Friday. According to data from FactSet, it appeared to several observers that the short interest had ballooned to an eye-watering 149%. This was based on a reported float of 26.3 million shares, which was evidently erroneous, as investment research firm Hindenburg Research pointed out in a post published an hour before the market closed for the weekend:

"The premise of the 'squeeze' in CLOV today appears to be a data error. It looks like FactSet erroneously removed CEO Vivek Garipalli's Class B shares from the Class A float calculation."

While some analysts, such as Ihor Dusaniwsky of S3 Partners, argued on Friday that this exclusion was justified, not everyone was convinced. Investor and market commentator Keubiko, for example, questioned the rationale for such an exclusion:

"Why would you deduct the CEO's 83.5 million Class B shares (of which there are a total of 261 million), from the number of Class A shares (of which there are 145.3M)? Which still gets you nowhere close to 26.3 million."

Based on the simple math of Clover Health's stated share count and attendant float, it seems clear that the short interest was likely nowhere close to what had been reported previously.

A faux short squeeze

Some commentators and analysts continued to claim that FactSet's initial high short interest calculation was correct. S3 Partners' Dusaniwsky, for example, claimed mere minutes before last week's close that FactSet was "standing behind their 26.3 million share CLOV float number." However, FactSet confirmed Hindenburg Research's data error hypothesis in an email after the market closed on Friday.

FactSet appears to have realized its error before then, however, as evidenced by pre-close updates to the reported short interest on several financial websites that use its data. MarketWatch, for example, showed a short interest of 37% before the close.

While the myth of 149% short interest in Clover Health was ultimately debunked, it still succeeded in driving up trading volume. A whopping 249.1 million shares changed hands on Friday, far above the daily average of 27.7 million. It seems to me that this excess volume was driven almost entirely by headlines warning of a potential short squeeze, as traders piled into the name in anticipation of a massive upward surge.

Shares did jump around 33% in intraday trading, but the momentum began to fade as the session wore on. A far smaller real short interest combined with revelations of the data error in the latter half of the session resulted in a pullback. Ultimately, Clover Health closed up about 21%.


A 37% short interest can hardly be called an uncrowded trade, but it is certainly less crowded than it had previously seemed. Consequently, anxiety about the potential for a punishing short squeeze in Clover Health was much reduced in light of FactSet's corrected numbers.

All the same, I feel that shorting any stock that has been identified as a short squeeze target however ineffective the first attempt may have been is a sticky proposition under current market conditions. As GameStop's wild ride has shown, even after an ostensible squeeze has ended, the upward momentum in a name can continue if there is sufficient retail trading interest.

Disclosure: No positions.

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John Engle is president of Almington Capital Merchant Bankers and chief investment officer of the Cannabis Capital Group. John specializes in value and special situation strategies. He holds a bachelor's degree in economics from Trinity College Dublin, a diploma in finance from the London School of Economics and an MBA from the University of Oxford.