On Tuesday, Clover Health Investments Corp. (CLOV, Financial) and The Wendy’s Co. (WEN, Financial) were thrust into the spotlight thanks to newfound attention on Reddit’s WallStreetBets forum. Wendy’s saw per share prices rising over 20% and Clover Health shares skyrocketed over 75% while the SEC ramped up monitoring for potential market manipulation.
Newly termed meme stocks have found themselves increasingly in the spotlight after the infamous short squeeze that occurred with GameStop Corp. (GME, Financial) earlier this year. Small-scale day traders that populate online forums and group together sent GameStop “to the moon” earlier this year, wreaking havoc on several hedge funds that had shorted the company. AMC Entertainment Holdings Inc. (AMC, Financial) took over trader interest in recent weeks and has seen share prices driven up well over 100% since the end of May.
Clover Health
The 10 million-plus followers of the now-famous WallStreetBets have shifted their focus to Clover Health (CLOV, Financial), driving the price up 75.75% to $20.95 per share with a market cap of $8.37 billion at the time of writing on June 8.
Clover Health is a health care technology company that uses its proprietary technology platform to collect, structure and analyze health and behavioral data to improve medical outcomes and lower costs for patients. The company went public after a merger with Social Capital Hedosophia Holdings Corp. III that valued the company at $3.7 billion including debt.
Prior to Clover Health’s recent popularity, the company caught negative media attention.
A critical report from short seller Hindenburg Research accused the SPAC behind Clover Health’s public debut of failing to do their due diligence regarding an ongoing Department of Justice investigation into the company. Soon after the company’s share prices tumbled and failed to make a full recovery prior to the recent media interest.
According to data obtained from S3 Partners, CNBC reported that a short squeeze could be at play for Clover Health, which has 43.5% of its float shares sold short. In a similar story to GameStop, short sellers will likely have to buy back shares and close their positions to cut their losses.
GuruFocus gives the company a financial strength rating of 6 out of 10 and a profitability rank of 1 out of 10. The company’s negative operating and net margins rank the company significantly worse than the industry and a severe warning sign has been issued for poor quality of earnings.
Top shareholders of Clover Health include Greenoaks Capital Partners LLC (Trades, Portfolio), Vanguard Group Inc. (Trades, Portfolio) and Baillie Gifford (Trades, Portfolio).
Wendy’s
Wendy’s (WEN, Financial) also joined the ranks of newly popular meme stocks as shares jumped over 20% on Tuesday to an all-time high $28.38 per share with a market cap of $6.28 billion at the time of writing. In comparison to Clover Health, Wendy’s did report strong earnings last quarter alongside an increased financial outlook for 2021, indicating potential tailwinds for stronger share prices.
The company’s first-quarter report showed year-over-year growth for both earnings and revenue that cruised past Zacks consensus estimates. The company also reported same-restaurant sales growth across all major markets.
“We are increasing our 2021 financial outlook meaningfully across all key financial metrics, driven by an outstanding first quarter that underscores our continued momentum and the overall strength of our business,” President and CEO Todd Penegor said. “The robust growth in our business continued in the first quarter of 2021 as sales significantly exceeded our expectations and fueled our restaurant economic model, leading to outsized profits. We remain committed to our three long-term growth pillars—significantly building our breakfast daypart, accelerating our digital business, and expanding our footprint across the globe—and continue to make great progress. I have never been more confident that we will achieve our vision of becoming the world’s most thriving and beloved restaurant brand as our System is stronger and more aligned than ever.”
GuruFocus gives the company a financial strength rating of 3 out of 10, a profitability rank of 7 out of 10 and a valuation rank of 10. Three severe warning signs show poor financial strength and an increased chance of bankruptcy despite the strong earnings report.
Top shareholders include Nelson Peltz (Trades, Portfolio) with 12.03% of shares outstanding, BlackRock Inc. (Trades, Portfolio) and Vanguard Group Inc. (Trades, Portfolio).
