Lemonade (NYSE:LMND). Now there’s a curious name for a company trying to establish itself in the insurance space. What’s more, it’s a setup for all kinds of jokes journalists love to foist on fledgling public companies. Like: “Lemonade stock hands investors lemons.” Or: “When life hands you lemons, divest from Lemonade.”
Here’s the one that I choose to use: When it comes to delivering the juice, Lemonade remains a bit too tart. Since going public in July, Lemonade’s shares have dropped 10%. And you have to wonder whether it’s the same old story as tech-related stocks go. Zero market cap. And, in all likelihood, a premature entry to Wall Street.
While that’s likely made founders Shai Wininger and Daniel Schreiber wealthy men, it isn’t doing much for the everyday investors who hope to follow suit.
An Intro to Lemonade Stock
First, a primer. Founded in 2015, Lemonade occupies a relatively new space as an insurer. An online-only startup, “it operates as a peer-to-peer insurance provider, meaning premiums paid by customers go into a community pot that is used to pay out claims.”
And of course, Lemonade seeks that cool, coveted title among tech firms: disruptor. Trouble is, you can parade that title as long as you like, but it’s never done much for the ride-hailing service Uber (NYSE:UBER). Since its IPO, it has dropped 24%, while competitor Lyft (NASDAQ:LYFT) is off 63%.
Remember when both companies lured investors like lemmings? News flash: Each remains far from profitable.
To be fair, Lemonade has nabbed media kudos as a company. U.S. News & World Report rates its renters insurance 4.3 out of 5 stars. (The company insures homes as well.) The insurer also boasts “a very high customer satisfaction rate,” writes The Simple Dollar, but also “falls a little short on some of its claims,” with only 30% instantly approved.
What’s more, any public company must post solid financial numbers that reflect solid financial performance, no matter how innovative the product. (Remember the DeLorean?) And when Lemonade released its first quarterly report on Aug. 11, it reported a loss of $21 million ($1.77 a share), coming off a Q1 loss of $36.5 million. So it’s been an up-and-down ride; on the bright side, Lemonade has a customer base of 814,000, a four-fold jump from the same time in 2018, while premiums per customer are up 37 percent to $190.
But a loss is a loss is a loss, and Lemonade has operated in the red through all of 2019 and 2020. Yes, the numbers are trending in the right direction. But a trend is not a dividend or a shot in the arm for your portfolio. That means at best, Lemonade is a long-range bet on a company that lacks a long-range track record. If you’ve been investing since 2014, your portfolio predates Lemonade’s existence.
So thus far, the plot line fits all too common a story that bears repeating no matter how many times this writer needs to say it. No tech stock, no matter how sexy the sector looks and cool the name sounds, should be mistaken for a gold mine when the company simply isn’t in the black. A lack of profit amounts to investing in a money-losing proposition: one that takes your hard-earned dollars with it until a better day, if that comes.
Bottom Line on LMND
Still, maybe keeping an eye out on Lemonade stock isn’t such a bad idea, even if putting your money down is at best premature. It could depend on how well the owners turn bad news into big hype; no CEO does this better than Elon Musk of Tesla (NASDAQ:TSLA).
Despite rounds and rounds and rounds of quarterly reports in the red, Musk brandishes a used car salesman’s knack for making big promises investors can’t ignore. Where other high-techs would finds themselves run aground, Tesla has actually rallied to more than four times from its share price in March. It now trades at roughly $2,000 a share, in part the result of a “largely cosmetic” 5-for-1 stock split and market speculators encouraged after four quarters of profitability. Still, one market expert remains baffled: “I really can’t explain Tesla,” Joel Greenblatt, co-CIO at Gotham Asset Management, told CNBC.
Which brings us back to Lemonade and its prospects, short and long term. For now, we advise waiting until the company proves itself a bit more seasoned and its business model immune to copycat startups. Note well that Lemonade’s marketing and sales spend has actually dropped from Q1, so it also remains to be seen how the company will get more of the word out with less firepower.
Yet homeowner’s and renter’s insurance being facts of life for us all, the demand for competitive, innovative products won’t go away. Hell, even the DeLorean Motor Company — which built “the Tesla of its day” — is making a comeback. So maybe there’s hope for Lemonade stock.
As of this writing, Lou Carlozo did not hold a position in any of the aforementioned securities.
