It bothers me when market commentators revile the millennial generation. This age group should be given credit for its fresh ideas and innovative approaches to traditional markets. Lemonade (NYSE:LMND), for example, is a new angle on insurance. That’s encouraging, but does it mean you should own Lemonade stock?
It’s entirely possible to applaud a company’s audacity while avoiding a position in that company’s stock. My concern is that overzealous traders may have gotten caught up in the mania of a year that’s rife with initial public offerings.
Lemonade has been part of this IPO frenzy. As we examine the post-IPO price action of Lemonade stock, perhaps we can all learn a lesson about the perils of bandwagon jumping as the market sours on Lemonade (sorry, I just couldn’t resist that one).
A Closer Look at Lemonade Stock
On July 28, I warned prospective investors not to get a sugar high on Lemonade stock. My thesis was that the hype surrounding the IPO would soon fade and therefore the share price would likely go down.
I’m no Nostradamus, but my thesis was indeed correct. Here’s the price-action rundown for Lemonade stock:
- Lemonade originally indicated a price range of $23 to $26 for the stock.
- Then, the company raised the IPO share price to $29.
- The stock debuted on the New York Stock Exchange on July 2 at $50.06 and jumped by 132% in its first day of trading.
- Four days later, on July 6, Lemonade stock touched its all-time high price of $96.51.
- The share price wobbled for the next couple of weeks, and then commenced a gradual but relentless decline.
- With August coming to a close, it’s fair to say that Lemonade stock peaked early. On midday Aug. 31, the shares were trading at $57 and change.
Moreover, the stock offers no dividend, so there’s really no consolation prize here for folks who purchased Lemonade stock shares while the price was surging.
Insurance You Can Feel Good About
My heart goes out to investors who believed in the concept behind the company but lost money on Lemonade stock. I have to admire the millennial generation’s brash, future-facing spirit in founding companies like Lemonade.
To give you a highly simplified version of Lemonade, the company leverages artificial intelligence as well as behavioral economics to provide a different insurance experience than what you may be accustomed to.
With a focus on renters, homeowners and pet-health insurance, Lemonade aims to “replace brokers and bureaucracy with bots and machine learning, aiming for zero paperwork and instant everything.”
Not only that, but the company strives to be more than an insurance-market profiteer. Specifically, Lemonade “gives unused premiums to nonprofits selected by its community, during its annual Giveback.”
High Concept, Low Price
It’s heartening to see that Lemonade is empowering its clients to make a positive difference in the world. For instance, according to Lemonade Lemonade CEO and cofounder Daniel Schreiber, the company’s recent Giveback initiative “helped finance medication for 50,000 ICU patients” during the Covid-19 crisis.
Thus, by investing in Lemonade stock, you’re effectively supporting a company that both high-concept and high-impact. Personally, I would like to see more businesses, millennial-targeted or otherwise, follow Lemonade’s lead.
It breaks my heart, then, to recommend that investors stay on the sidelines when it comes to Lemonade stock. Regrettably, as evidenced by Lemonade’s second-quarter fiscal data, the financials just aren’t where they need to be.
During that quarter, Lemonade unfortunately posted a net earnings loss of $21 million, or $1.77 per share. In addition, the company recorded an adjusted EBITDA loss of $18.2 million for the quarter.
The Bottom Line
It’s nice to know that Lemonade is taking on traditional insurance with a spirit of innovation and community service. Unfortunately, given the negative momentum of Lemonade stock, this isn’t the right time to take a long position.
On the date of publication, David Moadel did not have (either directly or indirectly) any positions in the securities mentioned in this article.
