Clover Health: A Gamestop-Like Short Squeeze Was Never Likely

Reddit investors (WallStreetBets) have had a lot of success targeting heavily shorted stocks this year. Just look at Gamestop (GME:US). This stock, which had a short interest of 141% at its peak back in early January, is up 740% year to date.

One stock the Reddit crowd has targeted recently is US Medicare advantage insurer Clover Health Investments Corp (CLOV:US), which was the subject of a critical report from US short-seller Hindenburg Research earlier this year. Last week, Reddit investors piled into the stock, forcing a small short squeeze that pushed its price up from $7.40 to near $10 in a matter of hours.

Reddit investors are unlikely to have the same success with this stock as they had with Gamestop, however. That’s because its short interest is nowhere near as high as GME’s short interest was in early January.

Clover Health Investments Corp: A Heavily Shorted Stock?

The main reason Reddit investors have been targeting Clover Health Investments Corp – which came public last year via a SPAC deal with Social Capital Hedosophia Holdings III – is that last week, S3 Partners, short interest and securities finance data specialist, published an article listing several of the most heavily shorted US stocks in the market by their short percent of the float. Clover had the highest short interest at 144.7%.

This high amount of short interest sent Reddit investors into a frenzy. With stocks making powerful moves based on social media chatter these days, even the hint of a short squeeze can send trading volumes soaring.

It turns out, however, that the short interest data on Clover was not accurate. What had happened is that FactSet had not classified CEO Vivek Garipalli’s 83.6 million shares as part of Clover’s float, and this had resulted in an extremely high short percent of the float.Source: Hindenburg Research

On Monday, S3 advised that Clover’s actual short percent of the float was 36.97% according to FactSet and 26.99% according to its own calculations.

Since then, Clover stock has fallen back to around the $9 level as interest in the stock has subsided.

A Huge Short Squeeze Was Never Likely

It’s worth pointing out that users of our Alpha Terminal – which uses short interest data from ASTEC – could have clearly identified that there was no real evidence of a massive future short squeeze for this stock.

On 20 April, ASTEC data showed that Clover had had a ‘utilization rate’ of 80-85% since the end of March. Utilization is the number of loaned shares divided by the available shares in the securities lending market, expressed as a percentage. So clearly, there was spare capacity on the short side.

Additionally, the stock had a loan-days-to-cover ratio below two and a Borrowing Activity Rating (BAR) of just six. Loan days to cover are calculated by taking the number of currently shorted shares and dividing that amount by the average daily trading volume for the company. A high ratio can often signal a potential short squeeze. In this case, however, the ratio was low.

There’s More to Short-Selling Data Than Short Interest

The key takeaway here is that it’s always worth digging a little deeper into short side data and not just looking at short interest. By analyzing metrics such as utilization rate and loan days to cover, investors can get a more complete view of a stock’s short interest activity.

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