2021 has not been kind to many growth stocks, and Lemonade (LMND) was no exception either. Since peaking in January 2021, shares of this New York-based property and casualty insurance company have fallen about 73%, including 40% since the start of the year.
Lemonade has been one of the insurance industry’s disruptors due to its use of artificial intelligence (AI) and behavioral economics to deliver cost benefits to customers. Currently, it is one of the few insurtech players in this growing industry.
Given the relatively low valuation it’s currently trading at as well as the name and recognition the company has earned through its ambitious designs and multi-product portfolio, we think it may be a good long-term buy. term.
Lemonade is a US-based company that provides insurance services in the US and parts of Europe. Its product portfolio includes home insurance, tenant insurance, automobile insurance, term life insurance and pet insurance. Apart from this, its insurance products also include stolen or damaged property and liability protection.
The best thing about Lemonade’s business is the advanced level of technology that it has incorporated into its routine operations. Given its current low valuation, we believe there is a relatively high possibility that it could generate many times its current value over the next 15-20 years.
The past few months could have been difficult for his business due to high inflation rates and potential interest rate hikes by the Fed. However, the company’s future should now look brighter as the global economy gets back on track.
The company relies heavily on bots and machine learning to attract customers. On the face of it, Lemonade is poised to disrupt decade-old practices in the insurance industry, making it a very attractive stock to watch.
Next opportunity: automotive sector
Prior to entering the auto insurance industry, Lemonade was in other insurance industries which gave it a huge marketing opportunity in the United States. Of all these services, term life insurance sales made up the absolute majority, followed by pet insurance.
Now, the car insurance industry can bring a lot of opportunities under Lemonade. This can be verified by the fact that in 2020 there were approximately 228 million licensed drivers in the United States, and a large portion of them had opted for an auto insurance policy.
Additionally, according to research by Million Insights, the global auto insurance market size could reach $1,620.2 billion by 2028, exposing the business to an even larger market in the future.
As entering the car insurance industry is not so easy and requires time to know the pricing strategy accurately, Lemonade acquired the AI-based insurance broker Metromile, a company that owns licenses insurance in 49 US states and has years of driver data. With this acquisition, LMND’s transition into the auto insurance business should accelerate.
As the number of auto insurance users and the auto insurance industry in general increases, Lemonade will also have the opportunity to sell its other services. So even if a small percentage of those users start buying additional Lemonade products, the company will be able to take advantage of incredible synergies.
Growing income with growing losses
The Lemonade business is growing. In its fourth quarter 2021 results, the company’s In Force Premium (IFP) jumped 78% year over year, although the rate of growth this time was much slower than in previous quarters. Additionally, its policy per customer increased 25% year-over-year to $266, along with a 43% increase in customers year-over-year. The best thing is that his earnings also increased by 100% to $41 million.
However, the biggest annoyance about the Lemonade stock is the huge pile of losses it has racked up. Its loss of $70.3 million was almost double the revenue generated and as a result investors were extremely disappointed.
Specifically, the company had recorded a loss ratio of 96% during this period despite all the commercial developments. However, cash, cash equivalents and investments totaled $1.1 billion, ensuring there are no liquidity threats at this time.
Its new products have higher loss ratios than the old ones, which further increases the ratio.
The Taking of Wall Street
As far as Wall Street is concerned, LMND stock is in moderate buy form based on three buy, two hold, and one sell rating assigned over the past three months.
The average lemonade price forecast is $40.50, implying an upside potential of 60.8%. Analyst price targets range from a low of $21 per share to a high of $95 per share.
Lemonade may be going through a tough time, but the company has a bright outlook. Its recent entry into the auto insurance business may also serve as a catalyst for its growth.
Moreover, it already stands out from generic insurers with its digital and customer-centric model and aspires to be a one-stop-shop for insurance seekers in the days to come.
Nevertheless, the company still has a long way to go and its immediate goal should be to stop its loss of cash. So, investors who can play the long-term bet and have a decent risk appetite may consider buying LMND now as it is still very cheap compared to what it used to be.
Discover new investment ideas with reliable data.
Read the full disclaimer and disclosure
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.