As the financial landscape increasingly meets with the disruptive forces of technology, Lemonade, Inc. (NYSE:LMND) is leveraging cutting-edge innovations, such as artificial intelligence (AI) and chatbots, to disrupt traditional insurance practices. Recent Q4 results surpassed expectations, but the stock dropped by more than 20% on concerns about near-term profitability. Wall Street is currently sidelined on the stock, given the ongoing challenges.
The Skynet of Insurance
Lemonade, Inc. is a New York-based insurance company that operates in the U.S., Germany, Netherlands, and France. The company offers a diverse range of insurance policies, including renters’, homeowners’, car, pet, and term life, using its high-tech AI platform to streamline issuing policies, paying premiums, and settling disputes.
Despite these innovative strides, Lemonade’s stock experienced a significant fall, declining over 70% since its initial trading day in New York in 2020. However, shares have been trending up lately, climbing 21% in the past six months.
Surprising Recent Results
Lemonade pleasantly surprised investors with robust Q4 results, reporting a year-over-year revenue growth of 31%, surpassing the top-end of its guidance range. Revenue came in at $115.5 million, versus an expectation of $111.8 million, and net losses tapered from $0.93 to $0.61 on a per diluted share basis, handily beating an expected loss of $0.80 per share.
According to the management, profitability is on the horizon, with expectations of positive cash flow by 2025 and adjusted EBITDA profitability by 2026. The founder and CEO, Daniel Schreiber, cited Lemonade’s strong position, with nearly $1 billion in cash and investments, placing the company in a good position to achieve these targets.
However, Lemonade has committed to doubling its growth budget in 2023, focusing heavily on advertising as a means of customer acquisition since it sells insurance coverage directly to consumers. This can have the effect of dampening profitability in the near term.
Despite the impressive numbers, LMND stock took a hit, falling over 20% following the announcement.
Is Lemonade a Buy, Sell, or Hold?
LMND trades towards the middle of the 52-week range of $10.26 to $24.81, with bearish technical indicators – below the 20-day moving average price of $17.36 and a 50-day moving average price of $16.95. It trades above the industry average on a Price-to-Sales basis (2.705x), so it may be fully valued at this level.
Analysts following Lemonade stock have mixed opinions, with one Buy, three Holds, and two Sell recommendations. Overall, LMND is rated a Hold based on the six ratings received in the past three months. The average price target is $20, with a high forecast of $40 and a low forecast of $13. The average price represents an upside of 18.20% from the current levels.
Final Look
Lemonade faces a complex yet intriguing journey in transforming the traditional insurance landscape. While there is no doubt that the company’s innovative technology has earned them considerable attention among investors, the varying recommendations from market analysts reflect a divided opinion on the stock’s future.
Its current trading pattern suggests a bearish tilt, and it looks to be fully valued at current levels. However, the upside of 18.20%, as projected by the average target price, can’t be ignored. Therefore, investors should closely monitor the company’s performance, upcoming earnings reports, and industry trends to make informed investment decisions.
