Lemonade, Inc. is one of the fastest-growing fintech companies offering its users a variety of top-rated insurance policies. While the company is quickly growing, its stock price has been quickly falling.
With its high potential for growth, should you be swooping in on Lemonade stock at this discounted price?
Lemonade Sparkled At First
Founded in 2015 by Daniel Schreiber, Shai Wininger, and Ty Sagalow, Lemonade, Inc. is one of America’s top-rated insurance companies. Lemonade offers renters’ insurance, homeowners’ insurance, car insurance, pet insurance, and term life insurance policies to those in the United States through artificial intelligence and chatbots.
This fast-growing fintech company has also expanded to provide liability policies in Germany and the Netherlands and renters insurance policies in France.
Lemonade’s initial public offering or IPO came on July 1, 2020. At this time, Lemonade began trading for around $29 per share under the stock ticker LMND. By April 2022, LMND stock was trading below this level and had a market cap of around $1.7 billion. The stock has shown high volatility since its IPO.
LMND stock’s 52-week low is $16.69 per share, and its 52-week high is $115.85. In January 2021, LMND hit an all-time high of around $180 per share. Rightly so, Lemonade’s high volatility has many investors on the fence about whether to invest in the company right now.
Lemonade Stock Is Dropping, Is Now the Time To Buy?
If you’re willing to stomach some volatility in your portfolio on the chance that you will be able to secure gains for various growth stocks, then buying LMND at this level has the potential to be a big winner.
In addition to a high potential for growth, some additional factors that point to LMND being a buy right now include:
- Lemonade has built a strong customer base in just seven years, amassing over 1.4 million customers.
- Lemonade is rapidly expanding its insurance options and policies while also expanding its geographical reach.
- Despite generating big losses, Lemonade is well capitalized with over $1 billion in cash, cash equivalents, and short-term investments.
Warren Buffett Wouldn’t Buy Lemonde Stock Right Now, But Does That Mean You Shouldn’t?
Warren Buffett is synonymous with investing. The 91-year-old is one of the most successful investors in the world, building a net worth of around $120 billion over the course of his career. While the declining stock price of Lemonade may have some investors going all-in, Buffett would be out when it comes to Lemonade stock.
Two clear reasons that Buffett would have for avoiding LMND stock include:
- Inflation is at an all-time high, and high periods of inflation make it harder for any insurance company to write profitable policies; Lemonade’s already posting losses at a corporate level.
- Lemonade is an overall risky option; insuretech hasn’t proven that tech can add value to the basic insurance model.
While Buffett is a seasoned pro in the investment world, he’s also in the later stages of his life and not willing to put money into stocks that demonstrate elevated risk. So, while Buffett may not want to invest in LMND stock right now, that doesn’t necessarily mean you shouldn’t invest in the stock. The rewards might just be worth the risks.
What Can Be Expected From LMND Stock Moving Forward?
It’s no surprise that growth stocks have been hit hard over the last year, and Lemonade is no exception. The company’s stock price is down big from a year ago, and now may just be the time to invest if Lemonade can recover moving forward. While growth stocks are somewhat unpredictable, Lemonade has a number of factors that keep it in good favor.
One such factor is that the young company is rapidly expanding with goals to upend the traditional insurance industry forever. 2021 was a year of huge growth for the company. Unfortunately, last year’s growth came at a cost for Lemonade and its shareholders as the company saw losses on its policies increase, with loss and loss adjustment expenses totaling $17 million and $72 million, respectively.
Overall, Lemonade’s net loss during 2021 was $241 million. This loss came on the back of its $122 million net loss in 2020.
Despite Lemonade’s recent losses, the company still has high growth potential as it continues to rapidly add to its customer base through new products, policies, and services each year.
Company executives remain hopeful that expanding into new markets will help take LMND stock to new heights in upcoming years. During the Lemonade, Inc. Q4 2021 Earnings Call, top executives outlined where they expect LMND stock to go forward and analyzed the stock’s overall performance.
During the call, Daniel Schreiber, who serves as the Chief Executive Officer and Co-Founder, remained optimistic about Lemonade’s 2021 performance, saying, “2021 was a very productive year for us, and we ended it materially larger, more diversified, and strategically stronger than ever. The year kicked off with a substantial capital raise that set our business up for years of sustained growth. And indeed, we ended Q4 with 100% revenue growth and with over $1 billion in cash.”
Scheiber went on to discuss the company’s 2022 outlook, saying: “And now to 2022, this year will shift much of our firepower to the next phase of our growth. A long-standing two-pronged strategy has been to win with technology and to grow with our customers. That is to build a digitally native company on the premise that an insurance company built on a technological foundation will be able to serve its customers and quantify risk with a degree of precision, another level of automation unavailable to incumbents.”
Scheiber went on to say “As we enter 2022, we find ourselves in an enviable position, having launched pets life and car in the past 18 months. We believe we have achieved a critical mass in both our technology and our product portfolio.”
Is Lemonade Stock a Buy, Sell, or Hold?
All things considered, Lemonade stock will remain volatile moving forward. However, the company also is projected to achieve massive growth over the next several years. These factors, combined with LMND stock’s current discounted price, make it a buy for traders willing to ride the price rollercoaster.